How Do I Know if I Have QSBS?
Determining whether you own QSBS (Qualified Small Business Stock) involves understanding both the nature of your investment and the qualifications of the issuing corporation. Here’s a guide to help you find out if you own QSBS, tailored to different roles such as employees, investors, or founders.
Employees
Check Your Stock Grants/Options: Review the documentation for any stock grants or options you received from your employer. This includes stock option agreements, RSU agreements, or any related equity award documents.
Inquire with HR or Legal Department: Contact your company's human resources or legal department to confirm if the stock qualifies as QSBS. They can provide details on the nature of the stock issued.
Examine the Corporation’s Structure: Ensure that your company is a C corporation, as QSBS can only be issued by C corporations.
Investors
Review Stock Purchase Agreements: Examine the documents related to your stock purchase, including stock certificates, purchase agreements, and any investment documents.
Contact Investor Relations or Corporate Secretary: Reach out to the investor relations team or corporate secretary to inquire if the stock you hold qualifies as QSBS.
Evaluate Eligibility Criteria: Ensure the issuing corporation meets the QSBS requirements such as the gross asset test, active business requirement, and qualified trade or business criteria.
Founders
Assess Initial Issuance Documents: Review the initial stock issuance documents, articles of incorporation, and any relevant agreements from when the company was founded.
Consult with Legal and Tax Advisors: Engage with legal and tax advisors who assisted in setting up the corporation to verify if the stock was intended to qualify as QSBS.
Verify Compliance with QSBS Criteria: Ensure the corporation has consistently met QSBS requirements, including the $50 million gross asset limit and the active business requirements.
General Verification Steps for All Roles
Confirm C Corporation Status: Ensure the issuing company is a C corporation at the time the stock was issued.
Active Business Requirement: Verify that at least 80% of the company’s assets have been continually used in the active conduct of a qualified trade or business.
Gross Asset Test: Ensure that the corporation’s aggregate gross assets did not exceed $50 million at any time before the issuance of the stock.
Holding Period: Check if the stock has been or will be held for more than five years, as this is required to benefit from the QSBS exclusion.
Consult Company Filings: Review the company’s financial statements and tax filings for any indications of QSBS qualification.
Seek Professional Advice: Consider consulting with a tax advisor or legal professional specializing in QSBS to get a more-defensible answer.
