On August 13, 2007, the United States Department of the Treasury issued regulations under Section 1045 of the Internal Revenue Code on which tax-free rollovers of gain from the sale of qualified small business stock ("QSBS") can be accomplished through structures involving partnerships. QSBS is stock acquired through original issue from a domestic C corporation that uses at least 80 percent of its assets in a qualified business, has less than $50 million of gross assets at the time of the stock issuance, and has not engaged in certain disqualifying stock redemption transactions.
Under Section 1045, a non-corporate taxpayer who acquires QSBS, holds it for more than six months, sells the QSBS, and within 60 days of sale reinvests all or a portion of the proceeds into replacement QSBS is required to recognize taxable gain on the sale to the extent that the sale proceeds exceed the purchase price of the replacement QSBS.
The regulations allow QSBS gain rollovers to be accomplished through partnership structures, but place limits on rollovers of gain attributable to carried interest.
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