About Course
JoseTaxes Academy
Qualified Small Business Stock Sales
General Information
Course Name
Qualified Small Business Stock Sales
Instructor
Jose Barrientos
Provider
J&J Multiservices Express LLC (DBA JoseTaxes.com)
CE Hours
1 hour
Format
Self Study
Language
English
Certification
Continuing Education (CE) Course
Course Description
The provisions of IRC Section 1202 offer taxpayers a significant opportunity to reduce the tax burden on gains derived from investments in small businesses. Since its enactment in 1993, the exclusion applicable to Qualified Small Business Stock (QSBS) evolved from 50% to 75% and, for stock acquired after September 27, 2010, to 100% of the eligible gain.
This course outlines the requirements for both the stock and the issuing corporation to qualify under IRC Section 1202, including original issuance, the holding period of more than five years, the per-issuer limitation, the $50 million gross assets test, the 80% active business requirement, and excluded trade or business activities.
It also examines transfers, conversions, reorganizations under IRC Section 351, basis rules, ownership through pass-through entities, short positions, and hedging transactions. Additionally, it presents calculation examples and the rollover rules under IRC Section 1045, including the 60-day replacement period and its application to partnerships and partners.
Course Objective
Equip the participant to identify and apply the federal tax rules governing Qualified Small Business Stock (QSBS), including the gain exclusion under IRC Section 1202, the rollover treatment under IRC Section 1045, eligibility requirements, basis and holding period rules, applications to pass-through entities, short position limitations, and reporting considerations.
Learning Objectives
- Identify taxpayers and gains eligible for the IRC Section 1202 exclusion.
- Determine whether stock and the issuing corporation meet QSBS requirements.
- Apply the per-issuer limitation, holding period rules, basis, and original issuance rules.
- Analyze transfers, reorganizations, ownership through pass-through entities, and short positions.
- Calculate tax consequences presented in IRC Section 1202 examples.
- Apply IRC Section 1045 rollover rules to individuals and partnerships.
- Interpret reporting using Form 8949, Schedule D, and Schedule K-1.
Who Should Take This Course
- Tax preparers working with investors, founders, or shareholders of small corporations.
- Accountants and tax advisors needing to evaluate eligibility for the IRC Section 1202 exclusion.
- Professionals advising on C corporation formations, property contributions, and reorganizations.
- Specialists working with partnerships, S corporations, and other pass-through entities holding QSBS.
- Students and tax professionals seeking to understand IRC Sections 1202, 1045, and 351.
Course Content — 6 Modules
| # | Title | Description |
|---|---|---|
| 01 | QSBS Fundamentals and Overview | Purpose and development of IRC Section 1202. Gains on QSBS sales, 50%, 75%, and 100% exclusion rates, history of the alternative minimum tax (AMT), empowerment zones, planning opportunities, and general requirements for full exclusion. |
| 02 | Eligible Gain and Qualified Small Business Requirements | Application of the per-issuer limitation: the greater of $10 million or ten times adjusted basis. Original issuance rules, $50 million gross assets test, 80% active business requirement, excluded activities, and anti-redemption rules. |
| 03 | Transfers, Basis, Pass-Through Entities, and Short Positions | Conversions, gifts, transfers upon death, partnership distributions, reorganizations under IRC Section 351, and basis rules for contributed property. QSBS treatment through LLCs, partnerships, and S corporations, alongside short position and hedging transaction limitations. |
| 04 | IRC Section 1202 Illustrative Examples | Guided calculations of realized, recognized, excluded, and taxable gain. Comparison of results based on acquisition date, AMT treatment, calculation of applicable exclusion, appreciated property contributions, and effects of short positions and put options. |
| 05 | IRC Section 1045 Rollovers and Partnership Applications | Requirements to defer gain through replacement QSBS, minimum holding period of six months, and the 60-day replacement window. Deferred gain calculation, basis reduction, elections at the partnership and partner levels, notices, and tiered partnership structures. |
| 06 | Glossary and Professional Reference | Definition and application of technical concepts such as QSBS, qualified small business, aggregate gross assets, AMT, capital gain, fair market value, pass-through entity, and IRC Section 351 exchange. Use of glossary and statutory references for research and client analysis. |
What You Will Achieve
- Determine whether a stock sale can benefit from the IRC Section 1202 exclusion.
- Distinguish between 50%, 75%, and 100% exclusion periods based on the acquisition date.
- Apply the per-issuer limitation based on the greater of $10 million or ten times adjusted basis.
- Evaluate the $50 million gross assets test and the 80% active business requirement.
- Track basis and holding periods through conversions, gifts, death, and reorganizations.
- Analyze QSBS application to partnerships, S corporations, and other pass-through entities.
- Calculate realized, recognized, excluded, taxable, and deferred gains under IRC Sections 1202 and 1045.
Included Materials
- Book: Qualified Small Business Stock Sales.
- Internal Revenue Code Sections 1202, 1045, and 351.
- Form 8949 and Schedule D.
- Schedule K-1 materials for partnerships and S corporations.
- Illustrative cases and applied calculations for IRC Section 1202.
- QSBS eligibility, calculation, and analysis worksheets.
- Transaction diagrams, glossary, and professional references.
Assessment
- Section Review Questions (20%): Evaluation of comprehension after each major unit.
- Practical Exercises and Case Studies (30%): Application of qualification, exclusion, basis, pass-through entity, and rollover rules.
- Final Exam (50%): Comprehensive evaluation of theoretical concepts and practical applications of the course.
Frequently Asked Questions
What is Qualified Small Business Stock (QSBS)?
It is stock issued by a C corporation that meets the requirements of IRC Section 1202, including original issuance, asset limits, active business, and applicable holding period.
What is the main benefit of IRC Section 1202?
For QSBS acquired after September 27, 2010, and held for more than five years, eligible gain can be 100% excluded, subject to the per-issuer limit.
What is the limit on gain that can be excluded?
The exclusion for each issuing corporation is limited to the greater of $10 million or ten times the taxpayer’s adjusted basis in the stock, considering applicable cumulative rules.
Can an S corporation issue QSBS?
No. Stock must be issued by a C corporation. However, an S corporation shareholder can benefit from IRC Section 1202 when the pass-through entity holds QSBS and corresponding rules are met.
What happens if stock is sold before five years?
IRC Section 1045 may allow gain deferral when QSBS was held for more than six months and replacement QSBS is acquired within the 60-day period.
Which forms are covered?
The course includes Form 8949, Schedule D, and Schedule K-1 materials for partnerships and S corporations, along with IRC Sections 1202, 1045, and 351.
How is the course evaluated?
Review questions account for 20%, practical exercises and case studies for 30%, and the final exam for 50% of the evaluation.
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