Recently proposed IRS regulations would limit the rollover of gain on "qualified small business stock" (QSB stock)
. Gain realized by a non-corporate investor on the sale of QSB stock held for at least six months may be rolled over into replacement QSB stock purchased within 60 days of the sale. Rollover effectively defers the tax until the replacement QSB stock is sold. Applying this simple rule to partnership purchases and sales, however, left ample gray area, now partially clarified by proposed regulations.
For example, some fund investors have taken the position that if a sale of QSB stock and purchase of replacement QSB stock occurred at the fund level but the fund declined to elect rollover treatment, the investor could make the election. The proposed regulations prohibit this. Similarly, some investors elected rollover treatment for a sale by one of their funds and a purchase of replacement QSB stock by another fund. Others elected rollover for a sale by the investor and a
