[so1913]

Hey guys, I’m a little stumped on this WTB Qualified Small Business Stock Question and could used some help understanding.

Danielson invested $2,000,000 in DEC, a qualified small business corporation. Six years later, Danielson sold all of the DEC stock for $16,000,000 and purchased an office building with the proceeds. Danielson had not previously excluded any gain on the sale of small business stock. What is Danielson’s taxable gain after the exclusion if he sold the stock in 2013?

$6,000,000

$0

$7,000,000

$9,000,000

Answer: $0

The requirement is to determine Danielson’s taxable gain after exclusion on the sale of qualified small business stock held for six years. A noncorporate taxpayer can generally exclude 50% (100% for 2012 and 2013) of the capital gain resulting from the sale of qualified small business stock held more than five years. The amount of excludible gain is subject to a cumulative limit of the greater of $10 million, or 10 times the investor’s stock basis. Here, the sale for $16,000,000 of qualified stock that was acquired for $2,000,000 results in a gain of $14,000,000. Since the $14,000,000 gain does not exceed 10 times Danielson’s stock basis, 100% of the gain can be excluded, resulting in a taxable gain after exclusion of zero.

My confusion is in the use of 100% exclusion. According to both Wiley and Becker literature “A noncorporate taxpayer can exclude 50% of capital gains resulting from the sale of qualified small business stock (QSBS) held for more than five years. The exclusion is increased to 75% if the QSBS was acquired after February 17, 2009, and before September 28, 2010, and 100% for QSBS acquired after September 27, 2010, and before January 1, 2014.”

The questions states that the stock was held for 6 years and sold in 2013. Wouldn’t that have made the stock originally acquired in 2007??? Wouldn’t that have meant a 50% exclusion? I’m missing something important here and hope someone can help me make the connection as to why 100% is used for a sale in 2013 vs an exclusion based on the acquisition date of the QSBS.

Thanks!!

AUD - 90 Pass
REG - 70,61,81 Pass DONE DONE DOOOOONNEEE!!!!!!!!
BEC - 79 - Pass
FAR - 70,82 - Pass