Impact of New Legislation -

The Protecting Americans from Tax Hikes Act of 2015 (the “PATH Act”) has amended Section 1202 of the Code to permanently extend the 100% exclusion for eligible gain on sales of qualified small business stock (“QSBS”). Under Section 1202 of the Code, an individual shareholder who has held QSBS for more than five years is eligible for a full or partial exclusion of eligible gain realized with respect to his or her QSBS. The portion of a taxpayer’s gain that is excluded under Section 1202 of the Code generally depends on when the QSBS at issue was issued to the taxpayer. As originally enacted in 1993, Section 1202 of the Code allowed for a 50% exclusion of the amount of eligible gain from the sale of QSBS held more than five years. A subsequent amendment to Section 1202 of the Code raised this percentage to 75% for QSBS acquired between February 18, 2009 and September 27, 2010. In 2010, the exclusion percentage was increased to 100% for QSBS acquired after September 27, 2010 and before January 1, 2012 (this period was later extended to QSBS issued in 2012, 2013 and 2014). The PATH Act has now effectively made the 100% exclusion applicable for 2015 and all years thereafter. The 100% exclusion applies for purposes of both the regular and the alternative minimum tax ("AMT").

Qualified Small Business Stock Defined -

As described above, an individual shareholder who has held QSBS for more than five years is eligible for a full or partial exclusion of gain on the sale of their QSBS under Section 1202 of the Code. In order to qualify as QSBS, stock must be...