The QSBS “Active Business Requirement” requires that “at least 80 percent (by value) of the assets” of the corporation are used in the “active conduct of one or more qualified trades or businesses1 during substantially all of the taxpayer’s holding period for such stock” (Section 1202 (2)(A)). Refer to this post regarding trades or businesses which qualify for QSBS.
The general intent of the “Active Business Requirement” is to ensure that the corporation continued the path set out when the QSBS shares were initially issued, devoting most of its resources towards that effort. However, there are some challenges and questions in how best to know and demonstrate that the corporation met this requirement and understanding what is meant by some of the more vague terminology, such as the meaning of “substantially all”.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.