Under recent legislation owners of private businesses can avoid capital gains taxes on up to $10 million of private stock (or 10x their adjusted basis, whichever is greater).
This tax free business sale is possible under IRC § 1202 and has greater impact now than in the past as AMT does not cut into its benefits. Businesses that are excluded include those whose primary asset is real estate or the reputation of the owner: e.g. an office building or a law practice.
The legislation was put in place with the intent of incentivizing early investors and to promote private C Corporations. Several technical requirements exist such as as original stock issuance, holding period requirements and shareholder type.
Some recent press and commentary include the following (contact us for academic and law review articles on some of the creative applications for this transaction):
Tax Geek Tuesday: Reminding You That The Gain On That Sale Of Stock May Be Tax Free https://www.forbes.com/sites/anthonynitti/2015/11/23/tax-geek-tuesday-reminding-you-that-the-gain-on-that-sale-of-stock-may-be-tax-free/
In my conversations with industry players, this is a widely ignored area of the code. Yet, for those who have benefited from these rules, it can be very lucrative.
Cohn Reznick - a supercharged tax planning opportunity for both qualified investors and company founders of early-stage companies.
Lowenstein & Sandler
QSBS became even more exciting as 100% exclusion (with no AMT) phased in!
With proper planning, many many taxpayers with upcoming gains can be structured to take advantage of this incredible opportunity.