Section 1202(f) states “If any stock in a corporation is acquired solely through the conversion of other stock in such corporation which is qualified small business stock in the hands of the taxpayer then (1) the stock so acquired shall be treated as qualified small business stock in the hands of the taxpayer, and (2) the stock so acquired shall be treated as having been held during the period during which the converted stock was held.” Therefore, if an investor acquired QSBS through convertible preferred stock and the preferred stock converts to common then the newly issued common would be treated the same as the original preferred stock for QSBS purposes.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.
