In 2010, Congress enacted legislation which could provide investors who acquire qualified small business stock (“QSBS”) before the end of 2011 with a significant tax benefit. The law permits an exclusion of 100% of the gains realized on the sale of QSBS if the QSBS was acquired by the investor after September 27, 2010 and on or before December 31, 2011 and held for more than five years. Under the temporary total exclusion, excluded gains also are exempt from the alternative minimum tax. As a result, under this exclusion, the effective federal income tax rate on qualifying capital gains generally will be zero. 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.

Although there has been a proposal to make this temporary total exclusion permanent, it is uncertain whether such legislation will be enacted or whether there will be any extension of the temporary total exclusion beyond the end of this year. Unless Congress acts, QSBS acquired after December 31, 2011 will revert to the original QSBS rules, which generally provide for a 50 percent exclusion of gain from qualifying sales of QSBS, subject to the alternative minimum tax.