To be considered an active trade or business for QSBS purposes the company has to be a Domestic C Corporation with at least 80% of its assets operating within one or more qualified QSBS trades or businesses. Also, the Company can not have more than 10% of its assets allocated to (i) real property that is not used within operations and/or (ii) portfolio stock or securities in third-party corporations with less than 50% ownership. If the securities are considered a controlling value, 50% or greater ownership, the securities will not be considered in the 10% test.

There is a special consideration for assets that are being held for investments to finance research and experimentation or increases in working capital within a two-year time frame. Another special consideration includes rights to computer software that receive royalties, falling within the meaning of section 543(1)(D). Those softwares will be included in active trade or business assets. Also, a specialized small business investment company operating under section 301(d) of the Small Business Investment Act of 1958 will be considered an active trade or business.

What is a small business investment company?

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