Under Section 1202 there are no requirements for applying for QSBS the day stock is purchased or keeping records over the course of the holding period. Even though you do not have to keep records while holding the QSBS you should. It would be maniacal to try and gather the documentation needed when submitting your QSBS capital gains qualification on your individual tax return. On, before, or shortly after the acquisition of the QSBS you should collect the below documentation.

  • Stock purchase agreement (assuming this includes the dollar amount acquired, the number of shares, and the date) (When did the holding period start?)
  • Proof that the company is below $50 million in aggregate gross assets at all times before and immediately after the purchase (i.e. historical audited or reviewed balance sheets) (Asset Test)
  • Consistent documentation that the company continues operating with at least 80% of its assets in the operations of the trade or business (Active Test)
  • No stock redemptions were made within a two or four-year timeline, depending on the redemption
  • Copy of the company’s articles of incorporation (C Corporation legal structure)

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