Should inventory be included in working capital assets when assessing the QSBS working capital limitation?

Section 1202 limits working capital that a company may apply towards the 80% test to 50% of total assets, however the question emerges as what assets should be considered to be “working capital” assets for purposes of QSBS?

Inventory is typically included as a component of working capital for accounting purposes, however should it be viewed as working capital for purposes of the working capital limitation? Doing so could cause companies that carry a significant of inventory to fail the Active Business requirement, however this seems to go against the intention of Section 1202.

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

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