Sacramento Seeks to Breathe Life into the Dying QSBS Exemption

The fiscal cliff deal extended the 100% qualified small business stock exemption for federal purposes. California tax authorities, however, have taken a restrictive and limiting view and have announced that the exemption will not be allowed for state income tax purposes. Under recently proposed SB 209, (1) taxpayers who did not already claim the QSBS exclusion between 2008 and 2012 could do so, (2) the FTB would be prohibited from issuing notices of proposed assessments or seeking interest for taxable years 2008 through 2011, (3) the QSBS exclusion would be suspended for taxable years 2013 through 2015, and (4) the QSBS exclusion would resume beginning January 1, 2016. As originally proposed, the fix dumps the two provisions of the recently struck down version of the QSBS that required 80% of assets and payroll expense be located in California during the holding period. It keeps the provision that requires 80% of the payroll of the company be located in California at issuance. The bill is still undergoing revision and change in the Senate, and the final version may not include the provisions described above.

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Roger Royse
rroyse@rroyselaw.com

Roger Royse, the founder of the Royse Law Firm, works with companies ranging from newly formed tech startups to publicly traded multinationals in a variety of industries. Roger regularly advises on complex tax structuring, high stakes business negotiations and large international financial transactions. Practicing business and tax law since 1984, Roger’s background includes work with prominent San Francisco Bay area law firms, as well as Milbank, Tweed, Hadley and McCloy in New York City.
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