Key Academic Work On Qualified Small Business Stock (QSBS)
Tax and legal professionals have opined on the challenges and opportunities related to Sections 1202 and 1045
Our team has learned a great deal from professionals from all around the QSBS landscape. Some writing stands out from others, so we’ve compiled* just a few of the key long-form materials pertaining to QSBS below. Also, check out our QSBS Rollover blog for more writing on QSBS and IRC Sections 1202 and 1045.
*The contents of this page are a selection of compiled writings from various sources. Vint does not claim ownership of any of the material presented below. Please note that the text and branding elements have not been altered in any way and that links to publicly available PDFs are all that is provided. All original content remains intact and is presented for informational purposes only. The contents herein may be outdated and do not constitute tax, legal, or otherwise investment or business related advice.
“Qualified Small Business Stock: Quest for Quantum Exclusions”
Authors Paul S. Lee, L. Joseph Comeau, Julie Miraglia Kwon, and Syida C. Long provide a comprehensive analysis of the Section 1202 QSBS exclusion and the intricacies of planning with QSBS. The article delves into the shareholder- and corporate-level qualifications necessary under Section 1202, highlighting how recent legislative changes like the Tax Cuts and Jobs Act and the economic impacts of the COVID-19 pandemic have made QSBS planning more relevant than ever. It emphasizes the potential tax benefits of QSBS, such as the 100% exclusion of gain, rollover opportunities under Section 1045, and strategies to maximize exclusions through careful planning. The authors also address the numerous unresolved questions and pitfalls associated with QSBS, providing practical guidance and highlighting common mistakes made by investors, founders, and advisors.
“Section 1202 (QSBS) Planning for Sales, Redemptions and Liquidations”
Author Scott Dolson emphasizes the importance of Section 1202's "sale or exchange" requirement for founders and early-stage investors seeking to benefit from QSBS capital gains exclusions. The exclusion is available only when QSBS is sold or exchanged in a taxable event. Key liquidity events like stock redemptions, partial, or complete corporate liquidations may also qualify if structured properly. For founders and investors, ensuring that transactions trigger capital gains treatment, rather than dividends or compensation, is critical for maximizing tax benefits. Dividends and compensation are not eligible for the exclusion, so careful planning is necessary to avoid these classifications during exits or liquidity events. Thoughtful planning helps founders and investors unlock the substantial benefits of QSBS in a sale or liquidity event, enhancing returns while mitigating tax liabilities.
“Advanced Section 1045 Planning”
Author Scott Dolson explores advanced planning techniques for Section 1045, which allows for the deferral of gain on QSBS sales by reinvesting in replacement QSBS within 60 days. The article highlights the synergy between Sections 1045 and 1202, illustrating how investors can defer gains when the QSBS five-year holding period has not been met, with potential to later benefit from the Section 1202 exclusion. Dolson details specific requirements and opportunities, such as the active business criteria for replacement QSBS and strategies to create or acquire qualifying businesses. The piece also addresses complex scenarios, including QSBS held in partnerships, installment sales, and forming new corporations for reinvestment. Emphasizing the importance of comprehensive planning, Dolson provides guidance on navigating these provisions to maximize tax efficiency in QSBS investments.
“Reinvesting QSBS Sales Proceeds on a Pre-tax Basis Under Section 1045” (Part 1 and Part 2)
Author Scott Dolson examines advanced strategies for reinvesting QSBS sales proceeds on a pre-tax basis under Section 1045 across two articles. In Part 1, Scott introduces Section 1045 as a planning tool that allows investors to defer gains by reinvesting proceeds from QSBS sales into replacement QSBS, particularly when the initial holding period requirements under Section 1202 are not met. He explores scenarios such as using Section 1045 to expand gain exclusion caps and as a vehicle for investing in start-ups, emphasizing the independent and complementary roles of Sections 1045 and 1202. In Part 2, He focuses on the practical requirements for executing Section 1045, including the timing of reinvestments, the importance of meeting active business requirements, and documentation best practices. He also addresses the challenges of reinvesting proceeds within the 60-day window and the complexities of structuring new corporations to qualify as QSBS issuers.