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Sohodojo Advisory Board Member
Jim Schneider
The Taxman86 Speaks...
16 March 2000
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The Young and the Restless; Things are getting bigger; Can you really defer market gains?

1. The Young and Restless Meet

Today in the Washington Post Download Column by Shannon Henry is an outstanding article on where all of the twenty to thirty something's meet to make their deals, talk about 18 hour days at the major law and accounting firms, and have fun in the greater Washington, D.C. area. The theme is that downtown is where the action is or could be if all the players had their choice, or to put it another way, where the exciting urban environment is. Downtown Washington, D.C. is also where the 'Zero Capital Gains Rate' is in play, bringing in the venture capital dollars to chase startup deals.

The final two paragraphs is the killer, a startup deal of from $3M to $200M in less than a year, with a tax free merger at the close. Our spin, you start with an IRC Section 1202 Qualified Small Business Stock startup, and then trade up into a publicly traded company and get IRC Section 1202 Qualified Small Business Stock [as to the gains then outstanding but not as to future growth] and you have the use of IRC Section 1045 forever and forever.

2. The Ways and Means Committee's Oversight Subcommittee Needs More Space

The upcoming hearing on Distressed Community Tax Incentives next Tuesday has been relocated to the main House Ways and Means Committee's Hearing Room for all to see. And, we are told that the House Republican Leadership, lead by Conference Chairman Rep. J.C. Watts, Jr. and House Small Business Committee Chairman Jim Talent are going head to head with Treasury and the White House over the proper incentive package, the result, in our opinion, both will get their way. That means 30% Tax Credits, and more Empowerment Zones, plus 'Zero Capital Gains Rate' and Renewal Zones.

The sleeper is an effort to make the entire District of Columbia 'Zero Capital Gains' which passed the Senate last year but was dropped from the final $782B Tax Cut Bill. Wait till the Washington Post hears about that move!

3. IRC Section 1044 is the key to Distressed Communities

These are challenging times for the stock market, and many people have made major paper profits, some of which could be sold and put away into real estate and other things if IRC Section 1044 get jazzed up as proposed by the President. The key is Specialized Small Business Investment Companies ['SSBICs'], a leftover from the 70's when then President Carter tried to make an effort to give something extra to the Economic and Socially Disadvantaged, as defined.

The problem is in the details, and now twenty years later SSBICs are not doing so well. That could all change if IRC Section 1044 becomes better known, and if $750,000 of market gains for individuals, and $2,000,000 for corporations -- if no marriage penalty then a couple could put away $1,500,000 -- roll over becomes the law, with a 180 day window to make the roll over. More on this as it plays out.

Jim Schneider, LL.M.

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