{"id":3397,"date":"2025-05-14T11:24:57","date_gmt":"2025-05-14T16:24:57","guid":{"rendered":"https:\/\/www.mgocpa.com\/?post_type=perspective&#038;p=3397"},"modified":"2025-07-21T16:03:16","modified_gmt":"2025-07-21T21:03:16","slug":"case-study-unlocking-100-million-gain-exclusion-under-section-1202","status":"publish","type":"perspective","link":"https:\/\/www.mgocpa.com\/perspective\/case-study-unlocking-100-million-gain-exclusion-under-section-1202\/","title":{"rendered":"Case Study: Unlocking a $100 Million Gain Exclusion Under Section 1202\u00a0"},"content":{"rendered":"\n<h2 class=\"wp-block-heading\">Background&nbsp;<\/h2>\n\n\n\n<p><a href=\"https:\/\/www.mgocpa.com\/perspective\/how-your-company-can-unlock-section-1202-tax-savings\/\" target=\"_blank\" rel=\"noreferrer noopener\">Section 1202<\/a> of the Internal Revenue Code offers a powerful tax incentive for investors in qualified small businesses: the potential to exclude up to $10 million \u2014 or 10 times their adjusted basis \u2014 from capital gains tax. Despite being on the books for over three decades, this provision is still underutilized, largely due to its complexity and lack of detailed IRS guidance.\u00a0\u00a0<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h2 class=\"wp-block-heading\">Challenge&nbsp;<\/h2>\n\n\n\n<p>A New York-based advisor reached out to MGO for a second opinion. Their client, a company founder, had recently undergone a recapitalization transaction involving a conversion of common to preferred shares and a partial redemption. A tax attorney had advised the client to claim a $5.8 million gain exclusion.&nbsp;<\/p>\n\n\n\n<p>The situation raised several key questions under Section 1202:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>How and when did the client acquire their shares?&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Does the company meet the definition of a \u201cqualified small business\u201d?&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Has anyone calculated the actual gain eligible for exclusion?&nbsp;<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Approach <\/h2>\n\n\n\n<p>MGO conducted a deep-dive analysis of the transaction and the company\u2019s qualification status under Section 1202. The team verified the business met IRS criteria for a Qualified Small Business. We also walked the client through the full implications of the LLC-to-C corporation conversion and confirmed the funding event had triggered a significant step-up in basis. This meant that instead of being capped at $10 million, the client was eligible for a 10 times basis exclusion \u2014 resulting in a $100 million gain exclusion shared between the founder and his business partner.&nbsp;<\/p>\n\n\n\n<p>Additionally, the team evaluated the structure of past and future share sales \u2014 including those involving preferred shares. As a result, the client was able to exclude all gains from the reported transactions and still retain $26 million in gain exclusion potential for future stock sales.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Value to Client&nbsp;<\/h2>\n\n\n\n<p>MGO transformed a narrowly scoped tax filing into a massive win:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>$100 million in total gain exclusion identified&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>$0 in capital gains tax on current transactions&nbsp;<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>$26 million in future tax exclusion potential preserved&nbsp;<\/li>\n<\/ul>\n\n\n\n<p>By leveraging in-depth knowledge of Section 1202, MGO helped the client turn a limited exclusion into a far more advantageous result.&nbsp;&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Don\u2019t Miss Out on 1202 Opportunities&nbsp;<\/h2>\n\n\n\n<p>If you or your clients hold shares in a small business, don\u2019t leave money on the table. <a href=\"https:\/\/www.mgocpa.com\/people\/peter-ness\/\">Our professionals<\/a> can help you evaluate 1202 eligibility, calculate your true gain exclusion, and build tax strategies that protect your wealth. <a href=\"https:\/\/www.mgocpa.com\/solution-industry\/tax-services\/\" target=\"_blank\" rel=\"noreferrer noopener\">Reach out to our team today<\/a> to explore your options.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Background&nbsp; Section 1202 of the Internal Revenue Code offers a powerful tax incentive for investors in qualified small businesses: the potential to exclude up to $10 million \u2014 or 10 times their adjusted basis \u2014 from capital gains tax. Despite being on the books for over three decades, this provision is still underutilized, largely due [&hellip;]<\/p>\n","protected":false},"featured_media":3398,"template":"","meta":{"_acf_changed":false,"content-type":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0},"perspective_topic":[66,65,68,16],"perspective-type":[72],"class_list":["post-3397","perspective","type-perspective","status-publish","has-post-thumbnail","hentry","perspective_topic-irs","perspective_topic-tax","perspective_topic-tax-credits-and-incentives","perspective_topic-tax-guidance","perspective-type-case-studies"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Case Study: Unlocking a $100M Gain Exclusion w\/ Section 1202 - MGO CPA | Tax, Audit, and Consulting Services<\/title>\n<meta name=\"description\" content=\"Find out how MGO helped a company founder take advantage of an overlooked tax code provision to realize substantial savings.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.mgocpa.com\/perspective\/case-study-unlocking-100-million-gain-exclusion-under-section-1202\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Case Study: Unlocking a $100M Gain Exclusion w\/ Section 1202 - 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