QSBS Exemption Guidelines

QSBS Stock Acquisition with a Holding Company

The graphic below illustrates the ownership structure after 100% of the stock is acquired in a qualified small business. The PE fund would form a holding company that would issue QSBS to the PE fund after infusing capital into the holding company. The holding company would then … Read More

Structuring QSBS Transactions

Purchasing existing stock or assets in a company does not qualify as qualified small business stock (QSBS). QSBS has to be newly issued stock and qualify as a Section 1202 qualified small business. Refer here for details on what constitutes a qualified small business. Section 1202 of the … Read More

An example of a Section 351 tax-free transaction

In 2012, ABC Corp raised $20 million in funding with an investor leading the round with a $5 million investment. The newly issued stock qualified as QSBS. Three years later the ABC Corp was acquired under a Section 351(a) tax-free stock exchange transaction. The acquirer exchanged newly issued non-QSBS for 100% … Read More

When Does My Timeline Start for QSBS?

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

Can the QSBS tax exclusion be transferred?

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