You Built the Company. We Confirm the Tax Benefit.
The Section 1202 QSBS exclusion can eliminate federal income tax on up to $10 million in gain per taxpayer, per company — or $15 million for stock issued after July 4, 2025 under the One Big Beautiful Bill Act. For a founder selling a company for $20 million, that's the difference between writing a seven-figure check to the IRS and keeping it.
But the exclusion only works if every requirement was met — from the day the company was formed through the day you sell. One structural mistake, one overlooked redemption, one quarter where the active business test slipped, and the benefit disappears.
That's what our 1202 Confirmation Service is for. We review the entire corporate history — formation documents, cap table, issuance records, business operations, and transaction history — and deliver a written memorandum confirming whether the stock qualifies as QSBS under Section 1202.
Who Needs This
Founders approaching an exit. You're in LOI discussions or preparing for an acquisition. The buyer's tax counsel is going to ask about QSBS. You need a definitive answer — not a guess — before the deal closes.
Investors doing pre-investment diligence. You're writing a check into a C corporation and you want to know, before you wire the money, whether the stock you're buying will qualify for the exclusion. Angels and early-stage funds use our confirmation service to verify eligibility before they invest.
Companies raising a round. Investors are increasingly asking about QSBS compliance during due diligence. A confirmation memo from counsel signals that the company takes this seriously and gives investors confidence in the tax treatment of their shares.
CPAs and financial advisors. Your client is claiming a $10 million exclusion on their tax return. You want backup. Our memo provides the factual and legal analysis your client needs if the IRS asks questions.
Employees and option holders. You exercised options in a startup. The company is being acquired. You think your shares might qualify — but you're not sure, and millions of dollars are on the line.
What We Review
Every confirmation engagement is fact-specific, but a typical review covers:
Entity structure and history. Was the company formed as a C corporation? Has it maintained C-corp status continuously? If it converted from an LLC or S-corp, when did the conversion happen and was new stock issued at that point?
Gross asset test. Did the company's aggregate gross assets stay below the applicable threshold ($50 million for pre-OBBBA stock; $75 million for post-OBBBA stock) at all times before and immediately after each stock issuance? We review balance sheets, funding records, and contributed property valuations.
Qualified trade or business. Is the company in an excluded category — professional services, financial services, hospitality, farming, or any of the other disqualified industries under Section 1202(e)(3)? This is one of the most commonly misunderstood requirements. Software companies generally qualify; SaaS businesses that look more like consulting-with-software can be a gray area.
Stock issuance mechanics. Was each share issued directly by the corporation in exchange for cash, property, or services? Were 83(b) elections filed where required? Do SAFEs or convertible notes convert into stock that satisfies the original-issuance requirement?
Holding period. Has the shareholder held the stock for the required period — five years for the full 100% exclusion, or three to four years for the new partial exclusions on post-OBBBA stock? Does the holding period tack from a prior instrument?
Redemptions and disqualifying transactions. Has the company repurchased stock within the lookback period that could taint the issuance? This is one of the most dangerous traps in QSBS planning — and one of the least understood.
State tax conformity. The federal exclusion doesn't automatically carry over to every state. California, Pennsylvania, Alabama, and Mississippi don't conform. Washington's capital gains tax currently exempts QSBS-excluded gains — but pending legislation (SB 6229/HB 2292) would change that. We flag state-level exposure so there are no surprises.
What You Get
A written memorandum or opinion-style letter that documents:
- The factual findings from our review of the company's corporate, tax, and transaction history
- Our analysis of whether the stock satisfies each Section 1202 requirement
- Identification of any risks, gaps, or open issues that could affect QSBS eligibility
- Practical recommendations for remediation if we find problems
- State-level conformity analysis for the shareholder's state of residence
This is a document you can rely on in exit planning, M&A diligence, investor discussions, and tax return preparation. It's not a checkbox exercise — it's a thorough, fact-specific legal analysis.
Why Work With Us
This is what we do. QSBS and Section 1202 are central to our practice — not a side offering. Joe Wallin holds an LL.M. in Taxation from NYU, co-chairs the Angel Capital Association's legal advisory council, and authored Angel Investing: Start to Finish (Holloway). He's been advising founders and investors on QSBS since before most lawyers knew what Section 1202 was.
We know the OBBBA changes cold. The One Big Beautiful Bill Act created a dual-track system — pre-July 2025 stock and post-July 2025 stock have different caps, different holding periods, and different rules. We've been writing about and advising on these changes since the day the law was signed.
We think about the things most people miss. Redemption traps. The qualified-business-test gray areas for SaaS companies. State-level decoupling. The interaction between SAFEs, convertible notes, and original-issuance requirements. These are the issues that blow up at exit if nobody caught them earlier.
Get Started
If you're a founder, investor, CPA, or advisor who needs to confirm whether stock qualifies for the Section 1202 exclusion, let's talk.
Or email Joe directly: wallin@carneylaw.com