As discussed in our blog for Nov. 23, 2010, the government enacted the Small Business Jobs Act of 2010 ("SBJA 2010") in late September of 2010. Among other things, SBJA 2010 provides for an exclusion of 100% of the gain realized on the sale of certain qualified small business stock ("QSBS") held for at least five years, if such QSBS is acquired or issued between September 27, 2010 and January 1, 2011. Providing for a one-year extension of the favorable QSBS tax provisions enacted by SBJA 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (generally, the "Tax Extension Act").

Existing Section 1202 of the Internal Revenue Code of 1986, as amended (the "Code") permits taxpayers, other than corporations, to elect to exclude 50% of the gain realized from the sale of QSBS held for at least five years (with such exclusion subject to a cap). In certain cases involving Empowerment Zones, the exclusion is increased to 60%, and for QSBS acquired or issued between February 17, 2009 and September 28, 2010, the federal government increased the exclusion to 75%. In the past, many taxpayers pursuing the QSBS exclusion were unable to realize any significant benefit because the amount excluded was treated as a tax preference for alternative minimum tax ("AMT") purposes. Essentially, a taxpayer subject to AMT would end up with nearly the same tax liability, regardless of such taxpayer's election to exclude gain under Section 1202. The Section 1202 exclusion for a taxpayer is limited to the greater of (i) $10 million or (ii) 10 times such taxpayer's basis in the QSBS.

Upon enactment of the Tax Extension Act on December 17, 2010, the provisions of SBJA 2010 that (i) increase the Section 1202 gain exclusion to 100% and (ii) remove the excluded gain from the list of AMT tax preference items, were extended to QSBS acquired between December 31, 2010 and January 1, 2012. Therefore, a taxpayer electing for exclusion under Section 1202 will have a zero federal tax liability with respect to the sale of QSBS held for at least five years, if such QSBS is acquired or issued between September 27, 2010 and January 1, 2012. Tax-free gain is a rare opportunity for taxpayers in the United States; and luckily, the Tax Extension Act has made this opportunity available for another 12 months.

In the decision of United States v. Nosal the Ninth Circuit Court recently gave added ammunition to a company seeking to enforce its right to protect valuable trade secrets from employee theft.  The lead defendant in Nosal  was a former executive of a national executive search firm who was found to have accessed his employer's database to steal confidential information, including customer lists, and used such information to his former employer's detriment to form a competing business.  The Ninth Circuit held that employees who exceed the scope of "authorized" access of a company's computer system, as defined by company policy, could be held criminally liable under Federal law (the Computer Fraud and Abuse Act).  Such criminal liability can be imposed where an employee uses a computer to obtain valuable information or material to defraud his employer company.

We encourage employers who do not have written computer use policies to take steps to create such policies immediately.  We also encourage those employers that have existing written policies to obtain an audit of such policies to determine their enforceability and application.

The Royse Law Firm can assist with this and other employment law compliance and litigation issues.  For more information about this and other employment law issues feel free to contact Lisa Chapman, Esq. at the Royse Law Firm. lchapman@rroyselaw.com