QUALIFIED SMALL BUSINESS STOCK (QSBS) DOCUMENTATION

IRC § 1202 ELIGIBILITY AND GAIN EXCLUSION ANALYSIS

SHAREHOLDER INFORMATION

Shareholder Name: [FULL LEGAL NAME]

Social Security Number / EIN: [SSN/EIN]

Address:
[STREET ADDRESS]
[CITY, STATE ZIP]

Shareholder Type:
☐ Individual
☐ Trust
☐ Estate
☐ Partnership (pass-through to partners)
☐ S Corporation (pass-through to shareholders)

Note: C corporations cannot claim the § 1202 exclusion.

COMPANY INFORMATION

Company Name: [COMPANY NAME]

Federal EIN: [EIN]

State of Incorporation: [STATE]

Date of Incorporation: [DATE]

Principal Place of Business:
[ADDRESS]

Primary Business Activity: [DESCRIPTION]

NAICS Code: [CODE]

SECTION 1: QUALIFIED SMALL BUSINESS (QSB) REQUIREMENTS

1.1 C Corporation Requirement:

☐ Company is (or was at time of stock issuance) a domestic C corporation

Note: Stock in S corporations, LLCs, partnerships, and foreign corporations does not qualify.

1.2 Gross Assets Test ($50M/$75M):

For Stock Issued On or Before July 4, 2025:
- Threshold: $50 million

For Stock Issued After July 4, 2025:
- Threshold: $75 million (per One Big Beautiful Bill Act)

Gross Assets Verification:

Gross Assets Calculation:

☐ Company's gross assets did not exceed $50M (or $75M) at all times before and immediately after stock issuance

1.3 Active Business Requirement (80% Test):

At least 80% of the corporation's assets must be used in the active conduct of one or more qualified trades or businesses.

Asset Usage Analysis:

Qualified Business Percentage: [%]

☐ At least 80% of assets used in qualified active business

SECTION 2: QUALIFIED TRADE OR BUSINESS

2.1 Excluded Businesses (IRC § 1202(e)(3)):

The following businesses DO NOT qualify:

☐ Professional Services in:
- Health (medical, dental, etc.)
- Law
- Engineering
- Architecture
- Accounting
- Actuarial science
- Performing arts
- Consulting
- Athletics
- Financial services
- Brokerage services
- Any business where principal asset is reputation or skill of employees

☐ Financial Businesses:
- Banking
- Insurance
- Financing
- Leasing
- Investing
- Similar businesses

☐ Other Excluded:
- Farming businesses
- Mining, oil, gas, or other extractive businesses
- Hotels, motels, restaurants, or similar businesses

2.2 Business Qualification Certification:

☐ The company's business is NOT one of the excluded businesses listed above

Describe the Company's Business:
[PROVIDE A DETAILED DESCRIPTION OF THE COMPANY'S BUSINESS ACTIVITIES]

SECTION 3: STOCK ACQUISITION REQUIREMENTS

3.1 Original Issuance Requirement:

The stock must be acquired at original issuance directly from the corporation.

☐ Stock was acquired at original issuance from the corporation
☐ Stock was acquired in exchange for:
☐ Cash: $[AMOUNT]
☐ Property (other than stock): $[FMV]
☐ Services: $[FMV]

Stock Acquisition Details:

3.2 Non-Qualifying Acquisitions:

Stock acquired through the following methods does NOT qualify:

☐ Purchase from another shareholder
☐ Gift (special rules may apply)
☐ Inheritance (special rules may apply)
☐ Stock options (unless exercised for original issuance)
☐ Conversion of other securities

Exceptions and Special Rules:

☐ Stock received in tax-free exchange under § 351 (may qualify if underlying stock qualified)
☐ Stock received from partnership distribution (partner may qualify)
☐ Stock received as gift (donee may inherit donor's holding period)
☐ Stock received by inheritance (special rules apply)

SECTION 4: HOLDING PERIOD REQUIREMENT

4.1 Minimum Holding Period:

For Stock Acquired Before OBBBA (July 4, 2025):
- Minimum holding period: 5 years for 100% exclusion

For Stock Issued After July 4, 2025 (OBBBA Rules):
| Holding Period | Exclusion Percentage |
|----------------|---------------------|
| 3 years | 50% |
| 4 years | 75% |
| 5 years | 100% |

Holding Period Calculation:

4.2 Holding Period Satisfied?

☐ Yes - Stock held for required holding period
☐ No - Stock not yet held for required period

SECTION 5: GAIN EXCLUSION CALCULATION

5.1 Maximum Exclusion Limits:

For Stock Acquired On or Before July 4, 2025:
- Greater of $10 million OR
- 10 times the adjusted basis of the stock

For Stock Acquired After July 4, 2025:
- Greater of $15 million OR
- 10 times the adjusted basis of the stock

5.2 Gain Calculation:

5.3 Exclusion Calculation:

5.4 Per-Issuer Limitation:

The maximum exclusion applies per issuer. If you've sold QSBS from this same issuer before:

SECTION 6: CONTINUOUS QUALIFICATION

6.1 Substantially All Test:

The company must be a QSB for "substantially all" of the shareholder's holding period.

☐ Company met QSB requirements for substantially all of the holding period

Events That May Cause Loss of Qualification:

☐ Gross assets exceeded threshold
☐ Changed to excluded business type
☐ Failed 80% active business test
☐ Converted to S corporation
☐ Excessive redemptions

6.2 Stock Redemption Limitations:

Significant redemptions can disqualify stock. Document any redemptions:

SECTION 7: STATE TAX CONSIDERATIONS

States That DO NOT Follow Federal QSBS Treatment:

Shareholder's State of Residence: [STATE]

State Tax Treatment:
☐ State follows federal QSBS exclusion
☐ State does not recognize QSBS exclusion - full gain taxable
☐ State partially conforms - [DESCRIBE]

Estimated State Tax on Gain: $[AMOUNT]

SECTION 8: ALTERNATIVE MINIMUM TAX (AMT)

Prior to TCJA (for reference):
7% of excluded gain was an AMT preference item.

Post-TCJA (2018-present):
☐ QSBS exclusion is NOT an AMT preference item for stock acquired after September 27, 2010

SECTION 9: SECTION 1045 ROLLOVER (ALTERNATIVE)

If the holding period requirement is not met, consider § 1045 rollover:

§ 1045 Rollover Requirements:
- Stock held more than 6 months
- Gain reinvested in replacement QSBS within 60 days
- Replacement stock meets all QSBS requirements

☐ Section 1045 rollover is being considered
☐ Not applicable

Rollover Details (if applicable):
| Original Stock Sold | Sale Date | Gain | Replacement Stock | Purchase Date |
|---------------------|-----------|------|-------------------|---------------|
| [COMPANY] | [DATE] | $[AMOUNT] | [COMPANY] | [DATE] |

SECTION 10: DOCUMENTATION CHECKLIST

Company-Level Documentation:

☐ Articles of Incorporation
☐ Stock ledger showing original issuance
☐ Balance sheets showing gross assets at time of issuance
☐ Tax returns (C corporation returns)
☐ Description of business activities
☐ Certification of qualified trade or business status
☐ Documentation of asset usage (80% test)
☐ Redemption records

Shareholder-Level Documentation:

☐ Stock certificates or book entry confirmation
☐ Purchase agreement or subscription agreement
☐ Proof of consideration paid (cash, property, services)
☐ Holding period documentation
☐ Sale documentation
☐ Prior QSBS exclusion claims (if any)

QSBS Attestation Letter:

☐ Company has provided QSBS attestation letter
☐ Attestation letter attached

SECTION 11: REPORTING REQUIREMENTS

Form 1040 Reporting:

• Report sale on Schedule D
• Claim exclusion on Form 8949
• Check box (f) for § 1202 exclusion
• Report excluded gain with code "Q"

Example Reporting:

SECTION 12: CERTIFICATION

Shareholder Certification:

I certify that, to the best of my knowledge:

1. The stock described herein was acquired at original issuance from a domestic C corporation
2. The corporation was a qualified small business at the time of issuance
3. The corporation engaged in a qualified trade or business
4. I have held the stock for the required holding period
5. I am eligible to claim the IRC § 1202 exclusion

Shareholder Signature: ___________________________________

Printed Name: [NAME]

Date: [DATE]

Company Certification:

I certify that, to the best of my knowledge:

1. [COMPANY NAME] was a domestic C corporation at the time of stock issuance
2. The corporation's gross assets did not exceed the applicable threshold
3. At least 80% of assets were used in qualified active business
4. The corporation engaged in a qualified trade or business (not an excluded business)
5. The stock was issued at original issuance to the shareholder

Authorized Officer Signature: ___________________________________

Printed Name: [NAME]

Title: [TITLE]

Date: [DATE]

IMPORTANT NOTES

1. Obtain Professional Advice: QSBS rules are complex. Consult a qualified tax professional before claiming the exclusion.

2. Document Contemporaneously: Maintain documentation at the time of stock issuance, not just at sale.

3. Track Multiple Acquisitions: Each stock lot may have different acquisition dates and bases.

4. Monitor Company Status: QSBS status can be lost if the company's circumstances change.

5. State Tax Impact: Many states do not recognize the QSBS exclusion. Plan accordingly.

6. OBBBA Changes: The One Big Beautiful Bill Act of 2025 made significant changes to QSBS rules for stock issued after July 4, 2025.

This template is provided for informational purposes and should be reviewed by qualified tax counsel before claiming any QSBS exclusion.