New and Improved Checklist for § 1202 Qualified Small Business Stock
BOSTON — As many advisors, founders, and investors in the middle-market growth-company space are aware, the “Qualified Small Business Stock” rules of Code Section 1202 are an enormous boon to eligible shareholders. Generally, investors in qualifying small businesses (valued at $50 million or less when the stock is issued) who have held their shares for at least 5 years can sell such stock and be exempt from all or a part of federal capital gains taxes (and very often state capital gains taxes, too).
But how do you know if the stock a corporation issues, or the stock a shareholder owns, is “qualified small business stock?” We have encountered this question many times in our practice and created a ‘checklist’ for discussion with our clients and co-counsel to help you determine whether stock is or will likely be eligible for this very valuable tax benefit. Our checklist has evolved based on prior checklists we have used, incorporating the best examples we have seen throughout our practice.
The attached checklist may be useful in two situations:
• When new stock is issued (Part I), and
• When stock is sold (Part II).
If you or your clients need advice as to whether certain stock can be eligible for QSBS benefits, please feel welcome to go through this checklist and bring your answers to us: we would be happy to go through the requirements with you and determine whether the stock is eligible.
Click here for a copy of our checklist.
Important: The attached document is not legal or tax advice: it is for discussion purposes only. Do NOT rely on the checklist to determine eligibility for any particular stock for QSBS benefits. Consult BHTP or another tax advisor to apply the law to your particular circumstances.
For further information regarding tax treaties or other tax law issues, please contact Travis Blais or Ben Damsky:
Travis Blais
(617) 918-7081
TBlais@BlaisTaxLaw.com
Benjamin Damsky
(617) 918-7084
BDamsky@BlaisTaxLaw.com