According to Section 1202, an individual must receive QSBS either directly from the issuing company or through a gift or inheritance. Partnerships or LLC are allowed to transfer QSBS to a partner but not vis versa. A partnership or LLC is not a stand-alone entity but a pass-through; therefore, if QSBS is gifted or transferred to the partnership the partners would be receiving the gift or transfer indirectly and not directly. Many high net worth individuals use a Family Limited Partnership (FLP) as tax shelter from current or future gifting taxes, but if the QSBS is transferred to the FLP it will not maintain its status.

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