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California QSBS Issues One Step Closer to Closure

May 02, 2013

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On Wednesday, May 1, Senator Ted Lieu's (D-Torrance) proposed legislative fix for the constitutional issues raised by Cutler v. Franchise Tax Board, 208 Cal. App. 4th 1247 (Cal. App. 2d Dist. 2012), cleared another hurdle and moved one step closer to becoming law. As most holders of qualified small business stock (QSBS) in California know, a California state appellate court declared portions of the QSBS tax statutes unconstitutional in Cutler

In response, the Franchise Tax Board (FTB) adopted the position that it would deny the exclusion and deferral of gain previously allowed to California taxpayers on the sale of QSBS. Furthermore, as described in FTB Notice 2012-03 and the related FAQs, FTB has also threatened to send deficiency notices to all taxpayers who disposed of QSBS on or after January 1, 2008.

As described in a prior alert, Senator Lieu's amendments to S.B. 209, originally introduced on April 3, 2013, would provide both retroactive relief and some prospective assistance for holders of QSBS. On May 1, the Senate Governance and Finance Committee approved S.B. 209 by a 6-1 margin. Importantly, the lone vote against the bill was cast by Committee Chair Lois Wolk (D-Davis).   

But holders of QSBS are not out of the woods yet. The Senate Appropriations Committee must  consider the bill before it is acting on by the Senate and, if approved by the Senate, sent to the State Assembly. 

For questions about QSBS or any other federal or state tax issues, please contact the Hanson Bridgett Tax Practice Group.

For more information, please contact:

Christopher Karachale

415-995-5863 Direct Phone
415-995-3407 Fax

Email Attorney


Fred Weil

415-995-5087 Direct Phone
415-541-9366 Fax

Email Attorney


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