Page 228 - Individual Forms & Instructions Guide

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$50,000). Put it in parentheses to show it version or exchange of QSB stock you Empowerment Zone Business
is a negative amount. held. Stock
Exclusion of Gain on 5. During substantially all the time You can generally exclude up to 60% of
Qualified Small Business you held the stock: your gain from the sale or exchange of
a. The corporation was a C corpora-
(QSB) Stock tion; QSB stock held for more than 5 years if
you meet the following additional re-
Section 1202 allows you to exclude a b. At least 80% of the value of the quirements.
portion of the eligible gain on the sale or corporation's assets were used in the ac- 1. The stock you sold or exchanged
exchange of QSB stock. The section tive conduct of one or more qualified was stock in a corporation that qualified
1202 exclusion applies only to QSB businesses (defined next); and as an empowerment zone business dur-
stock held for more than 5 years. If you ing substantially all of the time you held
c. The corporation wasn't a foreign
acquired the QSB stock on or before corporation, DISC, former DISC, regu- the stock.
February 17, 2009, you can exclude up
2. You acquired the stock after De-
to 50% of the qualified gain. However, lated investment company, real estate in- cember 21, 2000, and before February
vestment trust, REMIC, FASIT, or co-
you can exclude up to 60% of the quali-
fied gain on certain empowerment zone operative, or a corporation that has made 18, 2009.
(or that has a subsidiary that has made) a
business stock for gain attributable to 3. The gain from the sale or ex-
periods on or before December 31, section 936 election. change of the stock is attributable to pe-
2018. The 60% exclusion doesn’t apply SSBIC. A specialized small riods on or before December 31, 2018.
to gain attributable to periods after De- TIP business investment company Requirement 1 will still be met if the
cember 31, 2018. See Empowerment (SSBIC) is treated as having corporation ceased to qualify after the
Zone Business Stock, later. met test 5b. 5-year period that began on the date you
If you acquired the QSB stock after Definition of qualified business. A acquired the stock. However, the gain
February 17, 2009, and before Septem- qualified business is any business that that qualifies for the 60% exclusion can't
ber 28, 2010, you can exclude up to 75% isn't one of the following. be more than the gain you would have
of the qualified gain. • A business involving services per- had if you had sold the stock on the date
the corporation ceased to qualify.
If you acquired the QSB stock after formed in the field of health, law, engi-
September 27, 2010, you can exclude up neering, architecture, accounting, actua- Stock acquired after February 17,
2009. You can exclude up to 75% of
to 100% of the qualified gain. rial science, performing arts, consulting,
athletics, financial services, or brokerage your gain if you acquired the stock after
To be QSB stock, the stock must services. February 17, 2009, and before Septem-
meet all of the following tests. • A business whose principal asset is ber 28, 2010.
1. It must be stock in a C corpora- the reputation or skill of one or more You can exclude up to 100% of your
tion (that is, not S corporation stock). employees. gain if you acquired the stock after Sep-
2. It must have been originally is- • A banking, insurance, financing, tember 27, 2010.
sued after August 10, 1993. leasing, investing, or similar business. More information. For more informa-
• A farming business (including the
3. As of the date the stock was is- raising or harvesting of trees). tion about empowerment zone business-
sued, the corporation was a domestic C • A business involving the produc- es, see section 1397C.
corporation with total gross assets of tion of products for which percentage
$50 million or less (a) at all times after depletion can be claimed. Pass-Through Entities
August 9, 1993, and before the stock • A business of operating a hotel, If you held an interest in a pass-through
was issued; and (b) immediately after motel, restaurant, or similar business. entity (a partnership, S corporation,
the stock was issued. Gross assets in- common trust fund, or mutual fund or
clude those of any predecessor of the For more details about limits and ad- other regulated investment company)
corporation. All corporations that are ditional requirements that may apply, that sold QSB stock, to qualify for the
members of the same parent-subsidiary see Pub. 550 or section 1202. exclusion you must have held the inter-
controlled group are treated as one cor- Acquisition date of stock acquired af- est on the date the pass-through entity
poration. ter February 17, 2009. When you are acquired the QSB stock and at all times
determining whether your exclusion is
4. You must have acquired the stock thereafter until the stock was sold.
at its original issue (either directly or limited to 50%, 75%, or 100% of the
through an underwriter), either in ex- gain from QSB stock, your acquisition How To Report
change for money or other property date is considered to be the first day you Report the sale or exchange of the QSB
(other than stock) or as pay for services held the stock (determined after apply- stock on Form 8949, Part II, with the ap-
(other than as an underwriter) to the cor- ing the holding period rules in section propriate box checked, as you would if
poration. In certain cases, you may meet 1223). you weren't taking the exclusion. Then
this test if you acquired the stock from enter “Q” in column (f) and enter the
another person who met the test (such as amount of the excluded gain as a nega-
by gift or inheritance) or through a con-

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