Section 1202 QSBS SALE SCENARIO (SAME COMPANY/ISSUER)

QSBS Holder Shares sold Yr acquired Yr sold $ Gain Shares after sales % Tax Exclusion

WIFE (Joint Filer) 11,000 2005 2014(March) 10M 9,000 50%

WIFE “ 550 2005 2015 .5M 8,450 ??

WIFE “ 1,100 2005 2016 1 M 7,350 ??

WIFE “ 1,650 2005 2017 1.5M 5,700 ??

WIFE “ 1,650 2005 2018 1.5M 4,050 ??

HUSBAND (Joint) 550 2013 2018 (5yrs+) .5M 11,950 ??

*Question: Any future sale by husband or wife of their remaining shares would not be eligible for gains exclusion because they have more than 10m in gains already? Regardless of when they sell their remaining shares? Or since the wife will get only a 50% (or 5m) exclusion for 2014, the husband and wife still has another 5m in gains to exclude in future? (sales in 2015-2018)

SON (Adult-Sole) 550 2013 2018 (5yrs+) .5M 10,950 100%

*Question: Any future sale by Son would be eligible only up to 10m gain provided he sells after 2018?

Per-issuer limitation

There is a cumulative limit on the gain from a single issuer that a taxpayer may exclude. Eligible gain from any one corporate issuer in any given tax year is taken into account only to the extent that it does not exceed the greater of,

1. $10 million reduced by the aggregate amount of eligible gain taken into account by the taxpayer in prior years from the same issuer, or

2. 10 times the adjusted basis of all qualified stock of the issuer that the taxpayer disposed of during the tax year. Additions to the basis are disregarded. This limitation can severely restrict the tax benefit of this provision in the event of a truly substantial windfall.

The $10 million limitation is applied on a shareholder-by-shareholder basis and any property contributed to the issuing corporation is its fair market value as of the contribution date.

Married taxpayers filing separately have $5 million of eligible gain for each spouse.

**** EMPOWERMENT ZONE ENTERPRISE***

1. The QSB has always been located within the “empowerment zone”. No real estate owned (leased property).

2. This qualifies for another 10% (total of 60% exclusion) for 2014 in above scenario for “WIFE”??

3. Question: (From the holding period of stock, 2005 – 2014), in addition to the business being located within the empowerment zone, does 35% of the employees also have had to live within the empowerment zones for “substantially all of the holding period” ? This seems pretty vague –do we have to verify/check payroll records for nearly 10 years to review ALL employees’ reported addresses? This is a high employee turnover area.

Thank you.