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 that is acquired through the exchange of property is valued at the fair market value of the property on the date of the exchange. (Section 1202 (c)(1)(B)(i)).
- As compensation for services provided to the corporation, except for services performed as an underwriter of the stock. (Section 1202 (‘c)(1)(B)(ii)).
- Upon conversion of other stock if the stock is acquired solely through the conversion of other stock in the corporation. (Section 1202 (f)).
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.