This scenario is a typical transaction structure that PE funds will utilize. When a fund is acquiring a members interest in a pass through entity and not stock in a corporation the fund will set up a blocker corporation so that the income is not passing through … Read More
The below graphic illustrates a PE fund acquiring the assets of an existing company. The PE fund will then form a new corporation and contribute the assets at FMV to the corporation in return for newly issued shares of QSBS. Remember… this can only be done if … Read More
The graphic below illustrates the ownership structure after 100% of the stock is acquired in a qualified small business. The PE fund would form a holding company that would issue QSBS to the PE fund after infusing capital into the holding company. The holding company would then … Read More
Purchasing existing stock or assets in a company does not qualify as qualified small business stock (QSBS). QSBS has to be newly issued stock and qualify as a Section 1202 qualified small business. Refer here for details on what constitutes a qualified small business. Section 1202 of the … Read More
In 2012, ABC Corp raised $20 million in funding with an investor leading the round with a $5 million investment. The newly issued stock qualified as QSBS. Three years later the ABC Corp was acquired under a Section 351(a) tax-free stock exchange transaction. The acquirer exchanged newly issued non-QSBS for 100% … Read More
Not sure if the stock you’re invested in is QSBS, learn more about our QSBS Monitoring Platform In a merger, the QSBS qualification and holding period will be maintained if the merger is considered a tax-free stock transfer as (1) a section 351 stock exchange or (2) a section 368 reorganization. The … Read More
Gains on stock sold in under five years would not be considered “eligible” for QSBS tax treatment, and the capital gains will be taxed at the individuals capital gains rate. However, an alternative is to roll the sale proceeds into another company qualifying for QSBS, electing section 1045. More … Read More
The required holding period for Section 1202 QSBS starts the day the stock is acquired/issued. If stock was acquired through other securities such as convertible debt or stock options, the holding period for QSBS generally starts on the date the securities are converted to the stock. The following list shows … Read More
The transfer of QSBS through a gift or estate is considered a tax-free transfer for QSBS and maintains the tax exclusion upon transfer (Section 1202 (h)). Given the differing tax treatment of various types of gifts, it can become important to understand various differences in ways “gifts” are made when planning, … Read More
Individuals and “pass-through” entities can benefit from QSBS tax savings, but corporations investing in otherwise QSBS eligible entities cannot. A pass-through or flow-through entity is a legal structure that does not pay income taxes at the business level but passes earnings to its owners to be taxed at … Read More