Section 1202 is designed to encourage taxpayers to invest in incorporated small businesses by excluding some or all of the gain on a taxable disposition of stock in a corporation that meets the relevant requirements. While section 1202 has been in the Code since 1993, the current exclusion of up to 100 percent of the gain on a disposition of qualified small business stock, combined with the recent reduction in the income tax rate for C corporations, has greatly increased interest in this provision.
Section 1202 does, however, contain numerous potential traps for the unwary, and there is a lack of guidance on various aspects of its operation. Understanding these potential traps and uncertainties, as well as potential opportunities to structure transactions to qualify under or to enhance the benefits of section 1202, can help taxpayers obtain, or avoid unexpectedly losing, a potentially significant benefit.
Please join professionals from KPMG’s Washington National Tax practice as they discuss the general application of section 1202 as well as various issues regarding the provision.