The Internal Revenue Service (IRS) does not require the taxpayer to provide any documentation when electing the Section 1202 capital gains tax exclusion on the sale of QSBS, but the IRS does require documentation in the case of an audit. Section 1202 can be thought of as a rare or unconventional election on an individual tax return, which can cause the tax return to stand out or be flagged. Therefore, it is crucial to have gathered documented proof that the QSBS does pass all of the requirements laid out by Section 1202. Below are the documents to collect:
- Articles of Incorporation
- Stock Purchase Agreement
- At issuance: Tax Opinion Letter regarding classification of holdings as QSBS
- At sale: Tax Opinion Letter regarding evaluation and quantification of QSBS exclusion
- A Stock Sale Agreement
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.