Legal Alert - Incorporating a Partnership to Take Advantage of the Qualified Small Business Stock Rules
March 25, 2016
This is an update to a 2013 Legal Alert by Bahar Schippel and Bill Kastin titled: Excluding 100% of Gain From the Sale of Qualified Small Business Stock Acquired in 2013.
Among the tax breaks included under the Protecting Americans from Tax Hikes Act of 2015 (the “PATH Act”) is a permanent extension of the favorable treatment for qualified small business stock (“QSBS”). This provision permits an exclusion for 100 percent of the gain (up to a ceiling amount) arising from the sale of QSBS, including under the alternative minimum tax (“AMT”) rules. With an effective tax rate of 0 percent, this provision benefits both investors and businesses looking to raise equity. And, it comes at a time when the maximum effective tax rate on gains from the sale of capital assets is otherwise 23.8 percent. For businesses operating as a partnership for tax purposes, is converting to a C corporation to take advantage of these benefits an option, and if so, what are the implications?
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