To qualify as being able to issue QSBS stock, the corporation needs to be developing or producing a product for businesses or consumers. If the principal asset of the corporation is the skill or reputation of one or more employees than the corporation does not qualify for QSBS. According to Section 1202(e)(3) a “qualified trade or business” is any company other than:
- “Any trade or business where the principal asset is the reputation or skill of one or more of its employees”, such as performance of services in the fields of “health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, and brokerage services”.
- “Any banking, insurance, financing, leasing, investing, or similar business”
- “Any farming business”
- “Any business involving the production or extraction of products”, such as mining.
- “Any business of operating a hotel, motel, restaurant, or similar business.”
The vagueness of the phrase “performance of services” or determining whether the “principal asset” of a business comes from the skill or reputation of a particular employee can be subjective, however, some clarity has been offered by certain case rulings by the IRS.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.
