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For a tender offer for stocks that qualify for QSBS rule, does the difference between tender offer price and FMV count toward compensation income that should be taxed?

 
2 Replies
DMarkM1
Employee Tax Expert

For a tender offer for stocks that qualify for QSBS rule, does the difference between tender offer price and FMV count toward compensation income that should be taxed?

The only limits to the exclusion of gain (IRC §1202) according to Taxbook 2019.  .

 

A taxpayer can elect to exclude from gross income gain from the sale or exchange of QSB stock held more than five years.

The gain from stock of any one issuer that is eligible for the exclusion is limited to the greater of the following amounts

• 10 times the taxpayer’s basis in all qualified stock of the issuer sold or exchanged during the year.

• $10 million ($5 million for MFS) minus the gain from the stock of the same issuer used to compute the exclusion in earlier years.

 

The exclusion varies based on date of stock purchase.

 

Exclusion of Gain Percentages

 

Stock Acquired After… And Before… Percent of Gain Excluded    Qualified Small Business Stock Qualified                                                                                                                                                                   Empowerment Zone Business Stock

 

    8/10/1993                    2/18/2009                  50%                                    60%

    2/17/2009                    9/28/2010                  75%                                    75%

    9/27/2010                    No deadline              100%                                   100%

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For a tender offer for stocks that qualify for QSBS rule, does the difference between tender offer price and FMV count toward compensation income that should be taxed?

@DMarkM1 Your reply was so helpful, I'm hoping you might have an idea of what I'm doing wrong with the QSBS stock.

 

The QSBS stock was sold in multiple lots (all for the same company) within 2019 but turbotax is excluding all of it from federal tax, i.e., it does not seem to recognize that gains over the limits you describe should not be excluded from tax.

 

Do you have any suggestions on how to limit the exclusion in TurboTax?

 

Thank you!

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