Section 1202 states that a ” ‘qualified small business’ means any domestic corporation which is a C corporation” and does not explicitly state treatment for an LLC taxed as a C Corporation. Although this is true,  in Ltr. Rul. 201636003 a tax-free reorganization involving an LLC taxed as a C Corporation and converted to a C Corporation to qualify as QSBS with a holding period starting the date that the membership interest in the LLC was acquired. This means the IRS viewed the membership interest in the LLC taxed as a C Corporation as QSBS for Section 1202 purposes. This implies that the membership interest was QSBS before it was converted to a C Corporation. Therefore, there is a reasonable basis to consider an LLC taxed as a C Corporation to be considered QSBS.

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