Restaurants and QSBS

restaurant qsbs

As more and more small business owners and investors familiarize themselves with the term QSBS, they may be eager to learn if and how they can qualify for this attractive tax incentive.

Ineligible Industries Outlined under Section 1202

Instead of outlining eligible industries, Section 1202 of the IRC outlines ineligible industries in the case of qualified small businesses. The code outlines the following:

The company must be involved in a qualified trade or business which includes anything except: “the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees, any banking, insurance, financing, leasing, investing, or similar business, or any farming business, and any business of operating a hotel, motel, res­taurant, or similar business.”

In order to understand if a business that is related to restaurants can be a qualified small business per section 1202, we need to examine what makes a business as a restaurant according to the IRS.

What is a Restaurant Business?

According to Part III of the Internal Revenue Services Administrative, Procedural, and Miscellaneous code,

“a taxpayer is engaged in the trade or business of operating a restaurant or tavern if the taxpayers business consists of preparing food and beverages to customer order for immediate on-premises or off-premises consumption. These businesses include, for example, full-service restaurants; limited-service eating places; cafeterias; special food services, such as food service contractors, caterers, and mobile food services; and, bars, taverns, and other drinking places. For purposes of this revenue procedure, the trade or business of operating a restaurant or tavern also may include food or beverage services at grocery stores, hotels and motels, amusement parks, theaters, casinos, country clubs, and similar social or recreational facilities.”

Looking for specific advice on QSBS and Capital Gains? Contact us to learn more.

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.