Small Business Jobs Act of 2010 Temporarily Shortens Built-In Gains Tax Holding Period

When a C corporation converts to S status, the S corporation is taxed on all realized gains that had been built in at the time of conversion unless a holding period has been met. This normally is 10 years, but was shortened to seven years for gains realized in tax years before 2009 and 2010. The recently signed Small Business Jobs Act of 2010 shortens that to five years if the fifth year of the built-in gains potential recognition period precedes the company's tax year beginning in 2011. For qualifying ESOP companies that have converted to S status, this could allow them to sell some assets and not pay the "BIG" tax.