Not sure if the stock you’re invested in is QSBS, learn more about our QSBS Monitoring Platform In a merger, the QSBS qualification and holding period will be maintained if the merger is considered a tax-free stock transfer as (1) a section 351 stock exchange or (2) a section 368 reorganization. The … Read More
Gains on stock sold in under five years would not be considered “eligible” for QSBS tax treatment, and the capital gains will be taxed at the individuals capital gains rate. However, an alternative is to roll the sale proceeds into another company qualifying for QSBS, electing section 1045. More … Read More
The required holding period for Section 1202 QSBS starts the day the stock is acquired/issued. If stock was acquired through other securities such as convertible debt or stock options, the holding period for QSBS generally starts on the date the securities are converted to the stock. The following list shows … Read More
The transfer of QSBS through a gift or estate is considered a tax-free transfer for QSBS and maintains the tax exclusion upon transfer (Section 1202 (h)). Given the differing tax treatment of various types of gifts, it can become important to understand various differences in ways “gifts” are made when planning, … Read More
Individuals and “pass-through” entities can benefit from QSBS tax savings, but corporations investing in otherwise QSBS eligible entities cannot. A pass-through or flow-through entity is a legal structure that does not pay income taxes at the business level but passes earnings to its owners to be taxed at … Read More
QSBS can only be purchased directly from the qualifying QSBS C Corporation at its original issue. Therefore, stock that would otherwise qualify as QSBS loses this favorable status after it has been purchased through a secondary sale. QSBS can be acquired through: An exchange for any property, not including stock. QSBS … Read More
It is not easy for an investor, especially as a minority investor with limited, if any, visibility into the Company’s operations, to know if the Company has used at least 80% of its assets towards activities that qualify for QSBS. Unless the Company changed directions in a significant … Read More
The term “substantially all” is used several times in the QSBS criteria per Section 1202, but how long is “substantially all”, could it be a simple majority of the time held, or does it need to be longer? While “substantially all” is not defined in terms of a … Read More
“Aggregate gross assets” are defined in Section 1202 (d)(2)(A) as “the amount of cash and the aggregate adjusted bases of other property held by the corporation”. Some considerations regarding the assets included in the Active Business Requirement include: Cumulatively if over 20% of the company’s assets are investments, … Read More
Section 1202(e) explicitly states that “start-up activities” under Section 195(c)(l)(A) or research/experimental activities under Section 174 or Section 41(b)(4) will receive special treatment when testing for the active test. Therefore, if an angel investor is investing in a startup company that is pre-revenue and is still in the idea stage, trying to reach product-market fit, the … Read More