Section 1202 Gross Assets And Basis Issues For Qualified Small Business Stock

Highlights

• For stock to qualify for the exclusion of taxable gain under Internal Revenue Code Section 1202, the issuing corporation must satisfy the Gross Assets Test, which generally requires that the corporation have no more than $75 million of gross assets.
• Upon a disposition of qualified small business stock, the selling shareholder will be able to exclude all or a portion of its gain up to $15 million or 10 times the shareholder's aggregate basis in the stock that was sold.
• This Holland & Knight alert discusses how special Section 1202 basis calculations impact the Gross Assets Test and the limitations on exclusion from gross income.

In order for stock to be qualified for an exclusion on gain under Internal Revenue Code (Code) Section 1202, the issuing corporation must, among other requirements, have aggregate gross assets of no more than $75 million at the time of the stock issuance (and no more than $50 million for stock issued on or before July