Code §1202 stock is stock of a C corporation that operates a qualifying business. If held for more than five years, up to 100% of the gain on sale is tax-free, but limited to the greater of $10,000,000 or 10 times “§1202 basis.” Qualifying stock can be held by a partnership and can be distributed by a partnership to its partners. However, beware that a contribution of §1202 stock to a partnership, e.g., a family investment partnership, causes the stock to loses its qualification as §1202 stock.

Great question! I really enjoy answering questions from CPAs and other tax professionals.

Also, we cover this topic, as well as many other at our two flagship flow-though tax planning seminars:

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