The Small Business Jobs and Credit Act of 2010 temporarily permits a total exclusion from federal income taxation of gain from the sale of certain qualified small business stock (“QSBS”). To take advantage of this tax benefit, the stock must be acquired from a qualifying issuing corporation after September 27 and on or before December 31, 2010, and the investor must then hold the stock for more than five years. The investor must be a non-corporate taxpayer and for any one investor, the maximum amount of gain eligible for the exclusion with respect to the stock of a single issuer is the greater of $10 million or 10 times the investor’s basis in the stock of the issuing corporation.

Unlike the existing QSBS rules (which generally provide for 50 or 75 percent exclusions of gain from qualifying sales of QSBS), the temporary 100 percent exclusion provides the additional benefit that the excluded amount also is not subject to the alternative minimum tax. As a result, under the temporary 100 percent exclusion, the effective federal income tax rate on qualifying capital gains generally will be zero.