Favorable Tax Treatment Extended for Founders and Investors Receiving Stock in Certain ...

Good News!!!  Favorable Tax Treatment Extended for Founders and Investors Receiving Stock in Certain “Qualified Small Businesses” Just in time for the holidays, Congress recently extended certain favorable tax benefits under the Small Business Jobs Act of 2010 with respect to individual tax payers that receive stock in certain “qualified small businesses” through the end of 2011 (including individuals that receive stock through partnerships, although special rules, including basis allocation provisions, apply).  Before the extension, the window of opportunity only applied to new issuances occurring between September 27, 2010 and December 31, 2010. Under the legislation, all of gain up to the greater of (x) ten times (10x) the tax payer’s basis in the stock and (y) $10 million is excluded for federal income tax purposes (including AMT).  Generally to be eligible for the favorable treatment, the stock must be (i) acquired from the issuer during the extended window, (ii) held for at least 5 years, and (iii) issued by a “qualified small business,” which is generally a “C” corporation with $50 million or less of gross assets, excluding certain types of businesses, such as banking, farming, natural resources, consulting, engineering and leasing businesses. The prospect of a 0% federal tax rate should be quite an incentive for the formation and funding of early stage companies for the New Year! This post on Tax was authored by Robert Bishop.

 
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