Eligible Entities

Do Startups With No Revenue Qualify for Section 1202 QSBS?

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Section 1202(e) explicitly states that “start-up activities” under Section 195(c)(l)(A) or research/experimental activities under Section 174 or Section 41(b)(4) will receive special treatment when testing for the active test.

Therefore, if an angel investor is investing in a startup company that is pre-revenue and is still in the idea stage, trying to reach product-market fit, the stock will still qualify for Section 1202 QSBS if the company and the investor check off all of the boxes on the QSBS checklist.

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This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.

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QSBS Expert was founded by a group of entrepreneurs, investors, accountants and lawyers who came together when trying to navigate a QSBS situation of their own. We quickly realized that the regulations left a lot of open questions and the publicly available information was confusing to sift through…so we thought that others may also benefit from having a “go to” resource for all things QSBS.