Can I ask the IRS if my company qualifies as a Qualified Small Business? Taxpayers can seek guidance from the IRS to determine whether their company or a company in which they are a shareholder meets the definition of a Qualified Small Business (QSB). This would involve requesting … Read More
Most importantly not only can you provide a public benefit with your company's mission but also elect to receive the C Corporation tax exemptions as a PBC (i.e. Public Benefit Corporation) or B-Corp. PBCs and B-Corps can qualify for Section 1202 Qualified Small Business Stock (QSBS). PBCs … Read More
Is it almost that time of the year again? I hope so because it's almost time to get that tax refund and put in a new pool or in most cases... pay off medical bills. Assuming you are reading this article if you have Qualified Small Business … Read More
The answer is maybe.... because there are so many layers and nuances that make the tax code confusing. If you are unfamiliar with QSBS it stands for Qualified Small Business Stock and is regulated under Section 1202 of the IRC tax code. In short, QSBS is an … 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
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 … Read More
The general intent of QSBS is to encourage development of companies that are created to drive new innovations and spur job creation, however not every type of C-Corp can qualify for issuing QSBS. Companies incorporated in the U.S. as C-Corps are eligible for QSBS unless the corporation was formed … Read More
