Qualified Small Business Stock

[Howco]

Taxpayer sold 100% of his interest in a SMLLC. The SMLLC had properly elected to be taxed as a C-Corporation, had been filing Form 1120 all along.

Can gains on the sale of his interest qualify for 50% exclusion under Section 1202? I doubt it because he didn't actually own C-Corporation stock, he owned an LLC membership interest. Strict interpretation of the Code would suggest he does not qualify for 50% exclusion, but I didn't know if his entity classification election changed anything.

Also, prior to the sale, the taxpayer took distributions of the C-Corporation retained earnings. Are these properly classified as qualified dividends?

[BHoffman]

I'll give you a bump.

I agree with you regarding Sec 1202 after reading:

http://www.law.cornell.edu/uscode/text/26/1202

It says nothing about LLC elections and refers exclusively to Stock.

I think dividends were paid out of equity if the LLC elected to be taxed as a C-Corp.

Could be wrong, and maybe others will chime in.