Category: Sales & Exchanges; Nontaxable Exchanges Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com I refer to your question related to your client's suggestion that it is possible to sell closely-held corporate stock and roll the gain over tax free by reinvesting in municipal bonds, presumably publicly traded. I know of no such provision in the tax code. I did some checking and I cannot find anything like that. If only this were true. I think we CPA's would all be preaching this methodology in a loud voice on the street corner if this were possible. The various tax-deferred rollover, tax-deferred reorganization, tax-deferred exchange provisions typically require a continuing proprietary interest in something. A debt security is not deemed a sufficient proprietary interest in any rule I know of. What you describe is more like a sale for a security that has tax-free interest. What your client describes sounds to me a lot like Section 1044. This provision allows gain from the sale of publicly traded securities to be rolled over tax free into an interest in a specialized small business investment company (SSBIC). An SSBIC is any partnership or corporation licensed by the Small Business Administration (SBA) under Sec. 301(d) of the Small Business Investment Act of '58 as in effect on May 13, '93. That Sec. 301(d) authorizes the licensing of small business investment companies organized to invest in small business concerns in such a way as to facilitate ownership by persons whose participation in the free enterprise system has been hampered by social or economic disadvantages. It seems your client has this transaction going in the wrong direction: instead of rolling the gain from the sale of publicly-traded securities into a small business, your client suggests it is possible to roll the gain from a small business into publicly traded securities. Again, if only this were true. |
