As part of the ongoing discussions regarding proposed tax law changes, the recent proposal regarding the exclusion for the sale of Qualified Small Business Stock (QSBS) under Internal Revenue Code (IRC) §1202 caught many by surprise. The tax proposal from the House Ways and Means Committee released earlier this week, includes a new proposal limiting the exclusion available on the sale of QSBS for certain taxpayers. Under current law, the QSBS exclusion rate is 50%, 75% or 100%, with the rate dependent on the stock acquisition date. For QSBS shares acquired after September 27, 2010, the exclusion rate has been 100%. The House proposal eliminates the 75% and 100% rates for taxpayers with Adjusted Gross Income (AGI) over $400,000, thereby limiting their exclusion to 50% regardless of the date acquired. The effective date of this proposal would be for sales occurring on or after September 13, 2021 (unless a binding contract was in effect on September 12th).
Click here for more background regarding the tax benefits of QSBS under IRC §1202.
The proposal as written will be subject to many revisions as the legislative process unfolds. However, this initial proposal indicates changes may be on the horizon for technology entrepreneurs and investors. If you have any questions regarding this, please contact your WilkinGuttenplan advisor.