QSBS Founders React to BBBA Amendments and Incentive Cuts


As the Build Back Better Act Amendments (BBBA) continue to threaten the QSBS tax incentive, the potential repercussions are causing many founders to voice concern about the direct impact these changes would have on them, their fellow employees and their shareholders.

Originally designed to invigorate the economy and drive innovation, Qualified Small Business Stock (QSBS) was enacted by the government to encourage entrepreneurs to start new businesses and encourage investors to help fund these innovators — rewarding high-risk investments with equally high-rewards. Since the statute was enacted in 1993, QSBS has provided a pathway for founders and investors to implement long-term strategies, and many businesses have done just that. 

Forward Planning From the Business Owners

Small business owners have made business decisions (which go hand-in-hand with personal decisions when starting a small business) based on the tax incentive that could potentially be collected at the time. Section 1202 was created to keep the economy growing and has consistently received bipartisan support over its lifetime. For 30 years, the incentives have only increased as a reaction to the success of the initiative and to promote long-term commitment and stability for new startups. The 100% tax exclusion amendments made in 2010 led investors to expend necessary capital into the market to spur innovation and create jobs.

The proposed QSBS amendment, meant to help fund the BBBA, is sure to have both immediate and long-term ramifications for these small businesses. If the legislation is adopted as it is proposed, American taxpayers with an adjusted gross income (AGI) over $400k would no longer be eligible for the 100% QSBS tax exclusion – only half. This would eliminate many founders and investors from experiencing the full benefit of the incentive. What has continually been an economic tool to stimulate the economy, would now carry less weight and could stifle the entrepreneurial spirit of the American Economy.

Founders Story Received by CapGains, Inc

CapGains, Inc. (dba QSBS Expert) has received continuous outreach from small business founders expressing concern about how BBBA may impact their organization. Their concerns and frustrations illustrate the reality many startups are facing. 

For one such company, has grown from 0 employees to 53 employees over its 9 year history and is currently paying roughly $7 million in salaried compensation, with $2 million paid back to local, state and federal tax revenue, the blow of the QSBS incentive cuts are almost too much to bear – as the founder notes:

“QSBS is the reason we took the risk to self fund and bootstrap the company without taking on institutional investment. It’s the reason all the founders and early employees took gigantic pay cuts and zero benefits, because it was worth the risk due to an incentive put in place by the government. The incentive worked, we have a valuable asset based on 9 years of hard and under-paid (for founders) effort.”

At a time when trust in institutions is at an all time low, this founder noted:

“any that remained for entrepreneurs and small business owners has completely dissipated.”

The planning, budgeting, risk assessment, and decades of financial planning that go into starting and building a Qualified Small Business that will reward its founders, investors, and employees in the future could all be out the window. These changes could completely dissuade American taxpayers who are passionate and capable enough to build a small business from doing so in the future. 

The whole point of QSBS is to allow normal everyday people to take outsized risk with the hope (and “hope” is the right word when you start a new tech company) that there’s an outsized reward in the distant future.”

A QSBS founder who recognizes the 100% tax exclusion on the sale of his or her business is equipped to single-handedly facilitate economic growth for our country. They could start another business. They could start a non-profit. They could invest in the innovative efforts of others. But without the capital, and more importantly, without the trust in a government that protects QSBS and other tax initiatives, why would a person do any of those things?

In QSBS the government came up with an amazing scheme that’s created an untold number of jobs and made the US the World leader in venture investing and small business creation. It’s a near miracle that a program from the government actually achieved exactly what it set out to achieve. QSBS WORKS! It actually works.”

As many small business founders reflect back on decisions made years ago, what seemed like a risky yet promising plan at the time is now being viewed through a different lens. So much sacrifice was made in the early years for many of these companies, and for those who sacrificed so much, the proposed tax incentive cuts feel like a punch in the gut. 

If you are concerned about how the BBBA may impact your company’s eligibility for the 100% QSBS exclusion, we want to hear from you. Join us as we unite our voices to speak out against these proposed amendments.

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

About QSBS Expert

QSBS Expert was founded by a group of entrepreneurs, investors, accountants and lawyers who came together when trying to navigate a QSBS situation of their own. We quickly realized that the regulations left a lot of open questions and the publicly available information was confusing to sift through…so we thought that others may also benefit from having a “go to” resource for all things QSBS.