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Illustration: Annelise Capossela/Axios

Silicon Valley lawyers and wealth managers had their switchboards melt down yesterday, as word spread that House Democrats have proposed to retroactively end the tax break for qualified small business stock (QSBS).

Why it matters: Many startup founders and early employees have made major financial decisions based on the QSBS tax exemption, which has been at 100% since 2009.

  • The new proposal would revert the QSBS tax exemption to 50% for those earning more than $400,000, effective for all sales taking place at or after Sept. 13, 2021.

For example: Imagine you're an early Warby Parker employee who got QSBS-treated options when the company raised early funding in 2010 or 2011. You had planned to sell stock later this month via the direct listing, and had banked on the 100% tax exemption. Maybe you recently bought a house based on your understanding of the 2021 tax rates and the direct listing timing.

  • If this tax proposal becomes law, you'll be on the hook for capital gains taxes (most likely 20%).
  • And if you sell your stock next year instead, the rate would rise to 25% (also based on the House Dems plan).

Inside the numbers: Aumni, a provider of private capital data, reports that QSBS reps and covenants are present in over half of all seed-stage and Series A deals, and in over 40% of Series B deals.

  • "I don't object to the idea of removing the tax exemption going forward, but a lot of people planned around this who aren't being grandfathered in," says venture capitalist Mike Dauber, who adds that it also could discourage the formation of emerging VC funds.

Caveat: This proposal isn't close to a done deal. Not just the tax details, including changes to corporate rates and carried interest, but the entire "Build America Back Better" legislation that it's designed to help pay for.

  • In the meantime, those with liquid QSBS securities are in a pickle. They could sell now, hoping that lobbyists get the deadline pushed out to Dec. 31. Or they could hold, hoping the whole thing gets scrapped.
  • There's a similar dilemma for those on both sides of new VC funding rounds.

The bottom line: The only thing that's certain when it comes to federal tax policy is uncertainty.

Go deeper

Ben Geman, author of Generate
Sep 16, 2021 - Energy & Environment

First look: Greens seek K Street wedge on climate

Illustration: Sarah Grillo/Axios

Environmentalists are pressing big companies with lofty climate goals to split with their lobbying associations over sweeping Democratic legislation that includes major new clean energy spending and tax incentives.

Driving the news: A suite of climate groups just released an open letter to two dozen companies — including Apple, Walmart, Coca-Cola and Amazon — in the Business Roundtable, which has voiced several concerns about Democrats' wider spending and tax package.

Mike Allen, author of AM
33 mins ago - Technology

Axios interview: Facebook to try for more transparency

Nick Clegg last year. Photo: Matthew Sobocinski/USA Today via Reuters

Nick Clegg, Facebook's vice president of global affairs, tells me the company will try to provide more data to outside researchers to scrutinize the health of activity on Facebook and Instagram, following The Wall Street Journal's brutal look at internal documents.

Driving the news: Clegg didn't say that in his public response to the series. So I called him to push for what Facebook will actually do differently given the new dangers raised by The Journal.

The Exvangelicals

Illustration: Aïda Amer/Axios

Even as evangelicals maintain their position as the most popular religion in the U.S., a movement of self-described "exvangelicals" is breaking away, using social media to engage tens of thousands of former faithful.

The big picture: Donald Trump's presidency, as well as movements around LGBTQ rights, #MeToo and Black Lives Matter, drew more Americans into evangelical churches while also pushing some existing members away.