Deferral of Gain from Sale of Certain Business Operations by a
Large Business to a Small Business

Many larger companies have divisions which do not fit into their corporate structures or are unprofitable. Such activities might prosper in the hands of an independent owner. The existing tax law discourages larger companies from selling these business divisions to independent operators by imposing tax on any gain realized from the sale. Further, this gain is often partially treated as

ordinary income.

It is recommended that gains from the sale of such business assets be deferred if the proceeds from the sale are invested in SBE Bonds. Such deferral is available only if the purchaser qualifies as an SBE or MBE immediately after the sale. Taxation of the deferred gain is triggered for the selling company when the SBE Bonds are sold. This encourages larger companies to divest themselves of unwanted small business activities and require them to commit funds to the small business sector.

Summary of Equity Owner's Share of Income, Deductions,

N

Credits, etc.

Schedule III A

Equity Owner's Loss Deduction and Basis for

Equity Interest

4a.

During the year were there any non-trust owners other than individuals, estates of deceased equity owners or Small Business Investment Companies? YES

NO

4b. During the year were any trusts equity owners? YES
(If yes, explain fully on a separate page)

4c.

4d.

During the year were any of the equity owners nonresident
aliens? YES
NO

Does any equity owner control more than 1 Small Business
Enterprise? YES
NO (see Instructions)

4e. During the year, was there any foreign source income? YES

NO

4f. During the year, was there any income from natural resources or
timber operations? YES

NO

NO

4g. During the year, was there any income exempt from income tax other
than proceeds from insurance on the life of a deceased equity
owner? YES

4h.

NO

If a corporation, was there more than 1 class of stock
outstanding? YES

NO

4i. During the year, did the enterprise own:

1. An equity interest in another business enterprise (stock, partner-
ship interest, etc.)?
NO (If yes, explain fully on

a separate page)

YES

2. Real estate or personal property unrelated to the business
operations of the enterprise? YES

NO

3. Debt obligations of an obligor other than the U.S.
Government? YES

Further Instructions:

NO

If a proprietorship, file Schedule C, Form 1040; if a

partnership, file Form 1065; If a corporation, file Form 1120 or 1120S if:

1. Line 1 exceeds fifteen equity owners (if more than ten and less than sixteen equity owners, see Instructions).

The questions on Lines 4a, 4c, 4d, 4e, 4t, 4g, 4h, 412 or 4i3 are
answered "Yes".

If the questions on Line 4b, or 4il are answered "Yes" see Instructions.