Wednesday, November 24, 2010

Qualified Small Business Stock Revisited

I have been out for continuing education the last few days and an interesting point came up during one of the classes. I want to use this example to clarify a lot of misconceptions that are out there concerning qualified small business stock (QSBS).

During one of the courses, the instructor, a former IRS agent, was talking about qualified small business stock. During her oration, she suggested that only S Corporations could be organized as a qualified small business (QSB). At that point I took issue. I raised my hand and clarified, that although businesses that organize as a QSB may choose to be taxed as an S Corporation, that does not preclude traditional C Corporations from organizing as qualified small businesses.

Organization whether it be a traditional organization, or organization as QSB, is separate from electing to be taxed as an S Corporation.

As I covered previously in my post dated 10/12/2010 there are specific limitations as to what types of Corporations may be organized as qualified small businesses.

Please note, an eligible QSB must organize with qualified small business stock before December 31, 2010, in order to qualify for 100% capital gain exclusion. Special holding requirements apply. Also, this must be an original issuance, not a subsequent issuance or qualified transfer.

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