Treasury is “working diligently” on regulations tied to the Qualified Small Business Stock (QSBS) gain exclusion under Section 1202, according to Bloomberg Tax. Treasury attorney-adviser Evan Adams said at the American Bar Association Tax Section’s May meeting that both the scope and timing of the project remain “in flux,” and that Treasury is looking not only at the 2025 statutory changes, but at other QSBS issues as well. That is an important signal, suggesting the government may be preparing a broader regulatory package, not just a narrow set of technical instructions.
That would make sense. The One Big Beautiful Bill Act (OBBBA) made QSBS significantly more valuable by raising the aggregate gross assets threshold for certain newer stock from $50 million to $75 million, shortening the holding period for partial benefits, and increasing the exclusion cap for newly issued shares. But when a tax benefit grows more generous, the pressure to define its limits usually grows with it.
What Treasury May Be Trying to Fix
One likely target is technical cleanup. After OBBBA, the law is generally understood to preserve the old $50 million aggregate gross assets threshold for pre-OBBBA stock, while applying the new $75 million threshold to certain later issuances. But Section 1202 still contains legacy language that does not always read cleanly as a two-era system. In practical terms, the statute now operates as though there are old QSBS rules and new QSBS rules, while parts of the text still read as though there is only one framework. Regulations could help explain how those two regimes fit together and where the old $50 million test still controls.
An article by Edward Beeby points to another possible fix: inflation indexing for the new $75 million threshold. Beeby mentions that some tax professionals are concerned that a drafting error in OBBBA may have left that number unindexed, even though Congress appeared to intend otherwise. The article further notes that the Treasury is aware of the issue and is thinking about it. If that concern is not addressed, the real value of the $75 million limit would erode over time, making the expanded regime less meaningful than intended.
The Issues Congress Left Behind
The regulations could also touch issues that were discussed in Washington but never made it into the final statute. Earlier in 2025, Congressman David Kustoff introduced the Small Business Investment Act as a broader effort to modernize Section 1202. Public descriptions of that proposal said it would expand QSBS and better accommodate modern financing structures. Among the changes associated with that effort were S corporation treatment (ie. helping to grant relief to shareholders who received stock when a company was an S-corp, however the company later became and remained a C-corp), and rules addressing convertible notes (potentially applying to SAFEs as well). Those items did not make it into the final OBBBA package, but they remain highly relevant in the startup ecosystem.
That matters because these are everyday questions in venture finance, not theoretical ones. Startups often raise money through instruments that do not fit neatly into legacy tax language. When a SAFE or convertible note eventually becomes stock, investors want to know when the Section 1202 holding period starts and whether the resulting shares qualify at all. Treasury cannot simply legislate new eligibility by regulation, but it could still provide guidance on timing, conversion mechanics, and documentation. For founders and investors, that kind of clarification would be far more practical than abstract policy debate.
Trust Stacking and Other Long-Running Gray Areas
Treasury may also use this moment to address questions that investors have been asking for years. Among the most prominent are QSBS stacking through trusts, the application of QSBS to carried interest arrangements, and how to determine whether a company is engaged in a qualified trade or business. These issues often sit at the center of real tax planning, yet they remain unsettled enough that outcomes can depend heavily on structure, facts, and risk tolerance. Adams’ statement that Treasury is reviewing “other matters related to QSBS” leaves room for guidance in these areas.
Beeby’s article suggests that “trust stacking” may be one of the first places Treasury looks. He notes that taxpayers and advisers often try to multiply the QSBS exclusion by spreading ownership across multiple people or trusts, and quotes Adams as saying Treasury is reviewing transactions where trusts may be multiplying the Section 1202(b) limitation beyond what Congress intended. That does not guarantee a crackdown, but it does suggest the government is focused on one of the most aggressive and closely watched QSBS planning strategies in the market today.
Reporting Could Become a Real Compliance Requirement
Another area to watch is corporate reporting. Section 1202(d)(1)(C) already states that a corporation qualifies only if it agrees to submit reports to the Secretary and to shareholders “as the Secretary may require” to carry out the purposes of the section. That reporting hook has been in the statute for years, but it has never been turned into a detailed, widely used compliance regime.
That could change. If Treasury wants the expanded QSBS regime to be more transparent and easier to administer, it could require companies to provide investors, and potentially the IRS, with standardized information about QSBS status. That might include whether the company believes the stock qualifies, whether the aggregate gross assets threshold was met at issuance, and other key Section 1202 facts. For ordinary investors, that would bring a major shift. It could move QSBS status from something reconstructed years later in an audit or sale process to something disclosed much earlier and more systematically.
Why This Rulemaking Matters
The bigger story is that Treasury now has a rare chance to shape what QSBS becomes in practice. The 2025 law made the benefit richer. The coming regulations could make it clearer, narrower, more usable, or more heavily policed. Much depends on how ambitious Treasury decides to be, especially in a political environment that has shown an interest in expanding QSBS as a tool to drive innovation.
For founders, early investors, and startup companies, this means that the next round of QSBS guidance could matter almost as much as the statute itself. If Treasury uses this project to address drafting errors, trust stacking, financing instruments, qualified trade questions, and reporting, Section 1202 could become easier to understand but potentially more limiting for those that have sought advanced tax planning. If it does not, QSBS may remain what it has long been: one of the tax code’s most attractive startup incentives, but also one of its most technical and contested. For now, the message from Treasury is simple: the rules are coming, and they may reach much farther than many expected.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.