American policy and legislation is an ever-changing landscape. The Build Back Better Act (BBBA) has been in the news daily since President Biden’s first proposal back in April. Few Americans would be unaffected by this piece of legislation and multiple changes along the way have sparked interest in different populations. On Saturday, December 11, 2021, the Senate officially released their version of the BBBA and is starting down the road to approval.
What does the Senate’s version of BBBA say about QSBS?
The Senate’s version of this proposed legislation, particularly the amendments to Qualified Small Business Stock (QSBS) is unchanged from the original House bill, which passed on November 19, 2021. This potential legislation proposes a reduction of QSBS tax exemptions from 100% to 50% for those with an adjusted gross income over $400k.
This QSBS amendment could be highly detrimental to the startup business ecosystem that depends greatly on “high net-worth” investors to help fund their calculated endeavors. This shift in the investment market would likely cut off potential capital for many startups that rely on early stage investors.
This news raises questions about who will bolster support for the QSBS in the Senate. What are the next steps necessary to protect section 1202 from the potential amendments of the BBBA? In 2010, there was a bi-partisan push for a 100% capital gains exemption, including support from John Kerry and others, but unfortunately none of these former QSBS allies remain in office today.
So are there any speculative supporters in the Senate?
We know that President Biden has spoken with Senator Joe Manchin of West Virginia about supporting the BBBA as it works its way through the Senate. Manchin has been clear that he has deep-seated concerns over the “size and scope of the legislation.” Today, Manchin also told reporters that the BBBA’s reliance on temporary programs and high inflation are two of the main reasons he has failed to support the bill in the Senate so far.
Along with Manchin, democratic Senator Kyrsten Sinema of Arizona continues to be unsupportive of the BBBA. Although both Senators are putting up a fight, there are questions about their underlying reasons for resistance. QSBS concerns may not be at the top of their lists, but they have both supported innovation in their states, and if their general resistance holds the bill back from moving through the Senate, we can chalk it up as mutually beneficial.
Our startup economy is fueled by QSBS investments and the ripple effect of an exemption cut would be felt far and wide for American taxpayers.
Join our coalition to help make our stories heard by decision makers in DC and to protect QSBS and our entrepreneurial ecosystem.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.