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THOUGHT LEADERSHIP/ALERTS

UPDATE: Founders/Investors/VCs—Issue stock now to qualify for zero tax on capital gain

December 21, 2010
Venture & Technology Alert

Recently enacted legislation extends the window to issue stock in a qualified small company to December 31, 2011.

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Holders of qualifying stock will pay no tax or AMT if held for more than five years. How?

  • U.S. companies issue stock in exchange for money, property, or as compensation for services before January 1, 2012 (the exercise of warrants or the conversion of convertible notes to stock is treated as newly issued stock at the time of such exercise or conversion)
  • in a corporation that has $50 million or less of gross assets
  • that has a qualified active trade or business like technology, biotech, and alternative energy.
  • Hold the stock for at least 5 years.
  • When you sell, you exclude the gain (up to the greater of $10 M or 10x your basis).
  • You pay no tax or AMT on the excluded gain.
The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.