Congress once again temporarily extends the 100 percent capital gains exclusion on “qualified small business stock.”

On December 19, 2014, President Obama signed the Tax Increase Prevention Act of 2014 (the 2014 TIPA) into law. The 2014 TIPA renews and extends the 100 percent capital gain exclusion relating to gain realized on “qualified small business stock” (QSBS).

The Small Business Jobs Act of 2010 (the 2010 SBJA) included a provision amending Section 1202 of the Internal Revenue Code of 1986, as amended (the Code), to permit the temporary exclusion of 100 percent of any capital gain realized on the sale of certain QSBS as defined in that Code section. Under the law in effect before the 2010 SBJA, stockholders were generally permitted to exclude from recognition only 50 percent of the capital gain on the sale of QSBS, or 75 percent of the capital gain on such stock acquired after February 17, 2009 and before January 1, 2011. Under the 2010 SBJA, that exclusion was increased to 100 percent, but only for QSBS acquired between September 28, 2010 and December 31, 2010. This date was extended to December 31, 2011 by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the 2010 Tax Relief Act) and was further extended to December 31, 2013 under the American Taxpayer Relief Act of 2012 (the 2012 Taxpayer Relief Act). This most recent legislation, the 2014 TIPA, renews and extends this 100 percent exclusion period through December 31, 2014. Furthermore, the extension applies retroactively, such that the exclusion now applies to QSBS acquired after September 27, 2010 and prior to January 1, 2015. This Client Alert summarizes the existing tax rules relating to QSBS and the changes to these rules made by the 2010 SBJA, the 2010 Tax Relief Act, the 2012 Taxpayer Relief Act and the 2014 TIPA.