Stacking the Chips: Qualified Small Business Stock Exclusion.

Table of Contents I. Introduction 420 I. The History of Section 1202 422 A. Omnibus Budget Reconciliation Act of 1993 422 B. Temporarily Increased Section 1202 Exclusion 424 C. Permanently [...]
Section 1202 provides a significant incentive for investors in small business stock by allowing them to exclude from their income large amounts of gain on the sale of this stock. The rules allow investors to exclude either ten times their investment or a flat $10 million from their gross income. Currently, taxpayers with little capital at risk are receiving multiple $10 million exclusions by gifting the stock to family without increasing the amount of capital at risk. To limit this situation, the Treasury should reinterpret the Code to limit the ability of taxpayers to multiply the $10 million exclusion over multiple persons. Alternatively, Congress could act to eliminate this seemingly unintentional consequence of the Code. These changes would increase federal tax receipts while likely not decreasing investment or innovation in small businesses.