On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2013 (the “Act”). Among its many provisions, the Act extends through the end of 2013 the periods during which non-corporate investors may acquire qualified small business stock (“QSBS”) eligible for a 100% gain exclusion. Previously, the 100% exclusion had only applied to QSBS acquired after September 27, 2010 and before January 1, 2012 (as discussed in Goodwin Procter’s January 5, 2011 client alert, “Temporary Exclusion for 100% of Gain from Qualified Small Business Stock Extended Through 2011”). As a result of the Act, the 100% exclusion applies retroactively to QSBS acquired last year, and will continue to apply to QSBS acquired at any time in 2013.
The 100% exclusion continues to apply for purposes of both the regular federal income tax and the alternative minimum tax. The new legislation does not change any of the other general requirements applicable to QSBS, including that (1) with respect to an investment in a single issuer, the exclusion only applies to gain equal to $10 million or 10 times the investor’s aggregate tax basis in the issuer’s QSBS (whichever is greater) and (2) an investor must hold the QSBS for more than five years. For additional details on the general requirements applicable to QSBS, please see Goodwin Procter’s October 1, 2010 client alert, “Temporary Exclusion for 100% of Gain from Qualified Small Business Stock Acquired by Year End.” Investors who would like to take advantage of the new legislation should carefully consider the specific QSBS requirements as well as any additional requirements that may apply to them under the Internal Revenue Code.