In this fifth installment of my multi-part series on the One Big Beautiful Bill Act, Steve Nofziger and I discuss a provision of the Act that impacts certain business owners who are contemplating a sale of their shares, Code Section 1202.[1]
Background
Code Section 1202 has a rich history. It was originally enacted over three decades ago as part of the Revenue Reconciliation Act of 1993. It was one of many provisions of that legislation aimed at stimulating the investment in closely held businesses. Congress tinkered with Code Section 1202 over the following years, enhancing the benefits it offered small business owners. In 2009, as part of the American Recovery and Reinvestment Act of 2009, Congress temporarily increased the amount of gain exclusion offered under this provision. The next year, as part of the Small Business Jobs Act of 2010, Congress temporarily increased the gain exclusion in limited circumstances to 100%. Impetus for that amendment to Code Section 1202 (increasing the benefit to 100%) was recognition by lawmakers that many taxpayers that otherwise qualified for gain exclusion under Code Section 1202 were not able to take advantage of it due to other provisions of the Code (e.g., the individual alternative minimum tax). The 100% exclusion, however, enhanced the benefit so that taxpayers subjected to the alternative minimum tax would see some benefit from the application of Code Section 1202. Accordingly, as part of the Protecting Americans from Tax Hikes Act of 2015, Congress made the 100% exclusion permanent. Consequently, the selling shareholders of a closely held corporation and their tax advisers today need to evaluate the application of Code Section 1202.
The One Big Beautiful Bill Act (the “Act”), signed into law by President Trump on July 4, 2025, made several significant changes to the existing framework for the exclusion of capital gains from the sale of qualified small business stock (“QSBS”) under Code Section 1202.
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Larry J. Brant
Editor
Larry J. Brant is a Shareholder and the Chair of the Tax & Benefits practice group at Foster Garvey, a law firm based out of the Pacific Northwest, with offices in Seattle, Washington; Portland, Oregon; Washington, D.C.; New York, New York, Spokane, Washington; Tulsa, Oklahoma; and Beijing, China. Mr. Brant is licensed to practice in Oregon and Washington. His practice focuses on tax, tax controversy and transactions. Mr. Brant is a past Chair of the Oregon State Bar Taxation Section. He was the long-term Chair of the Oregon Tax Institute, and is currently a member of the Board of Directors of the Portland Tax Forum. Mr. Brant has served as an adjunct professor, teaching corporate taxation, at Northwestern School of Law, Lewis and Clark College. He is an Expert Contributor to Thomson Reuters Checkpoint Catalyst. Mr. Brant is a Fellow in the American College of Tax Counsel. He publishes articles on numerous income tax issues, including Taxation of S Corporations, Reasonable Compensation, Circular 230, Worker Classification, IRC § 1031 Exchanges, Choice of Entity, Entity Tax Classification, and State and Local Taxation. Mr. Brant is a frequent lecturer at local, regional and national tax and business conferences for CPAs and attorneys. He was the 2015 Recipient of the Oregon State Bar Tax Section Award of Merit.
