Legislative Updates: Expansion of QSBS Reintroduced by Rep. Kustoff (TN)

Rep. David Kustoff’s office has reintroduced a house bill from the 118th congress that failed to move through Ways and Means Committee in that session. The reintroduction falls under H.R. 1199, and includes proposals to expand the impact of the Qualified Small Business Stock exclusion by making the exemption available to more corporations (not just C Corps) and by providing partial exclusions on gains recognized in years three (50%) and four (75%), rather than only after year five.

Additionally, the bill seeks to clarify that convertible debt instruments into QSBS will retain the original holding period, benefiting investors who convert debt into equity. The proposed changes also clarifies aggregation rules for S corporations and modifies the passive loss treatment for dispositions of QSBS. The bill applies prospectively to stock acquired after its enactment while ensuring that prior rules remain applicable to stocks acquired before the Creating Small Business Jobs Act of 2010.

How Our Team Will Be Involved

Changes to Section 1202 are discussed often, but up until now there has been very little coalition building at the legislative level, and at the constituent level, for these much needed updates.

This session, we intend to utilize the breadth of resources at our disposal to advocate for founders, investors, and early employees of the companies that drive forward American growth and innovation. Our efforts will include close tracking and coverage of the status of proposed changes, as well as acting as a leader in bringing together founders, venture capitalists, tax professionals, and other stakeholders who understand the impact that these exclusions have on incentivizing investment activity into our most vibrant and profitable industries.

These updates are much needed not just for founders and investors in technology, but for main street businesses that don’t fit the “traditional” QSBS mold of C-corps raising venture equity. We will advocate for the expansion of QSBS so that more and more capital is retained in the hands of entrepreneurs and investors who care about American technological and industrial progress both on the coasts, and in businesses across the country.

To discuss these changes with our team, and to get involved in building support for these updates, contact brady@qsbsrollover.com.