Can an LLC Taxed as C Corporation Qualify for QSBS?

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Section 1202 states that a ” ‘qualified small business’ means any domestic corporation which is a C corporation” and does not explicitly state treatment for an LLC taxed as a C-Corporation.

Although this is true,  in Ltr. Rul. 201636003 a tax-free reorganization involving an LLC taxed as a C Corporation and converted to a C Corporation to qualify as QSBS with a holding period starting the date that the membership interest in the LLC was acquired. This means the IRS viewed the membership interest in the LLC taxed as a C Corporation as QSBS for Section 1202 purposes.

This ruling implies that the membership interest was QSBS before it was converted to a C Corporation. Therefore, there is a reasonable basis given this case to consider an LLC taxed as a C Corporation to likely be considered QSBS.

More on Eligible Entities

This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.

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