Tax act provides benefits for "small" corporations.

OBRA created tax code section 1202, which provides a unique benefit to noncorporate shareholders of small corporations: It permits them to exclude 50% of the gain realized on the sale of "qualified small business stock" held for more than five years. Eligible stock must have been issued originally for money or property after August 10, 1993, by a qualified small business corporation. Moreover, the issuing corporation cannot have engaged in certain stock repurchases for specified periods before and after the stock was issued.

To qualify, a small business corporation may not have aggregate gross assets exceeding $50 million at any time between August 10, 1993, and the date the eligible stock is issued. At least 80% of its assets' value must be used in the active conduct of a qualified trade or business. A corporation does not qualify, however, if a substantial part (such as 10%) of its assets is invested in portfolio securities or investment real estate.

A business does not qualify if (1) its principal asset is its employees' reputation or skill, (2) it engages in finance, insurance, investing, leasing or farming, (3) it engages in extracting or producing natural resources eligible for percentage depletion or (4) it operates a hotel, motel or restaurant.

Observation: The law specifically allows "pass-through" entities, such as mutual funds, to earn, and pass through excludable gains to their beneficial owners. Also, the cumulative amount of gain a shareholder may exclude with respect o a single qualified corporation is limited to the greater of $10 million or 10 times the aggregate basis in the entity's stock.