Treasury Signals Crackdown on QSBS Trust Stacking: What Founders Should Do Now

On May 20, 2026, Kenneth Kies, the Treasury Department's Assistant Secretary for Tax Policy and acting IRS chief counsel, told a tax conference hosted by BakerHostetler that Treasury is "taking a close look at" the §1202 planning technique known as stacking. His remarks suggest Treasury is considering guidance in this area, though the timing and scope remain open questions.

If you are a founder, early employee, or investor who has executed — or is considering — a multi-trust QSBS plan, this is the moment to take a hard look at your structure.

Update (July 4, 2026): The Wall Street Journal reported on June 29 that Treasury and IRS officials are preparing guidance aimed at limiting trust stacking. Kies's warning is now on the record — “Let me just warn you: we don't like stacking” — and a second Treasury official, attorney-adviser Evan Adams, made similar comments on May 9. Per the Journal's reporting, ordinary family estate planning appears less likely to be targeted; Treasury's concern is overlapping or synthetic trusts that multiply exclusions for the same economic beneficiaries. That is consistent with the §643(f) analysis below: the exposure is tax-motivated fragmentation, not the mere use of multiple trusts. No formal guidance has issued as of this update.

What Stacking Is, in One Paragraph

The §1202 gain exclusion is calculated per taxpayer, per issuer. The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, raised the cap to the greater of $15 million or 10x adjusted basis (the basis at original issuance (at least the FMV of any property contributed, per §1202(i)(1))) for QSBS issued after that date (with tiered 50/75/100 percent exclusion at 3/4/5 years of holding). Because each non-grantor trust is treated as a separate taxpayer for federal income tax purposes, a founder can — in principle — gift QSBS into several irrevocable non-grantor trusts benefiting different family members, with each trust claiming its own exclusion. Five trusts, five exclusions. That's stacking.

Example: A founder with $50M of gain on pre-OBBBA QSBS — stock issued on or before July 4, 2025, so the $10M / 10x cap applies — who holds the stock personally can exclude only $10M, leaving $40M taxable. Gifted across five separate non-grantor trusts — each with its own $10M exclusion, for $50M of aggregate capacity — potentially all $50M is excluded. Stacking therefore shelters an extra $40M of gain. Gain above the per-issuer cap is long-term capital gain taxed at up to 20% plus the 3.8% net investment income tax (23.8%), so the federal tax saved is on the order of $9.5M, before any state tax. That's what Treasury is looking at. (Stock issued after July 4, 2025 carries the higher $15M cap, but it cannot generate §1202-eligible gain until its third issuance anniversary — mid-2028 at the earliest. So the only stacks that can produce excluded gain today are built on $10M-cap stock; structures funded with post-OBBBA stock are planning for exits in 2028 and beyond.)

What Treasury Actually Said

Reporting in the Bloomberg Daily Tax Report (May 21, 2026) says Kies told the BakerHostetler audience that investors are "going beyond" the one-trust-per-family-member scenario, and that Treasury is taking a close look at more aggressive structures. The OBBBA expanded the §1202 exclusion but did not statutorily address stacking. Kies's remarks suggest Treasury may pursue administratively what Congress did not address legislatively — though Treasury's options, scope, and timing all remain to be seen. Kies's exact words were not initially released — Bloomberg reported his remarks secondhand from the conference — but the Wall Street Journal has since put them on the record (see the July update above).

Why Treasury cares: the numbers. The Joint Committee on Taxation estimates the §1202 exclusion will cost $4.9 billion in federal revenue in FY2026 — more than triple its 2017 cost. A 2025 Treasury study found taxpayers claimed $140 billion in QSBS exclusions from 2012 through 2022, peaking in 2021 at roughly 2.5% of all capital gains. And in that peak year, trusts and estates accounted for 17.5% of QSBS claims — far above the share a decade earlier. That last figure is the tell: the growth Treasury is reacting to is trust-driven, which is why the coming guidance will be aimed at trusts rather than at §1202 generally.

A note on what this is and isn't: as of this update, Treasury still has not issued any QSBS-specific guidance, notice, or proposed regulation on stacking. But the signal has strengthened since May: Kies's remarks are now on the record, a second Treasury official has echoed them, and the Wall Street Journal reports guidance is being prepared (see the July update above). The §643(f) authority and §199A precedent discussed below are real and on point — but the QSBS-specific campaign is, for now, a signal and not a rule.

The Existing Legal Landscape

Three pieces of background worth knowing:

1. §643(f) is already on the books. That provision empowers Treasury to treat two or more trusts as a single trust if (i) the trusts have substantially the same grantor and substantially the same primary beneficiary, and (ii) a principal purpose of the arrangement is the avoidance of federal income tax. The statutory hook for an anti-stacking rule has existed for decades.

There is a real question, though, whether §643(f) can carry the weight. By its terms, the provision applies “for purposes of this subchapter” — Subchapter J, which governs the income taxation of trusts and estates. Section 1202 sits in Subchapter P. Guidance that used §643(f) to collapse trusts specifically to deny separate §1202 exclusions would invite a textual challenge on scope. The more natural foundation is §1202(k), which directs Treasury to prescribe regulations “as may be appropriate to carry out the purposes of this section, including regulations to prevent the avoidance of the purposes of this section through split-ups, shell corporations, partnerships, or otherwise.” That “or otherwise” is an express anti-avoidance grant sitting inside §1202 itself — no subchapter gymnastics required. Where the guidance lands matters: a §643(f) rule would be confined to trust structures, while §1202(k) regulations could reach exclusion multiplication more broadly. And even without new regulations, the IRS has existing tools — the assignment-of-income doctrine can unwind transfers made after the gain is, as a practical matter, already earned, which is why gifts executed on the eve of a signed deal carry risk no trust drafting can fix. This is not theoretical: per the Wall Street Journal’s June 2026 reporting, the IRS is already pursuing audit cases against structures that look like tax avoidance rather than planning — trusts set up just before a company sale being the paradigm case. Advisers quoted in that reporting put it plainly: planning done at the time of a binding letter of intent is not going to work.

2. Treasury tried this once before. In 2018, proposed regulations under §643(f) included a presumption that separate trusts had a tax-avoidance purpose if they produced a significant income tax benefit that could not have been achieved without the separate trusts. That presumption was dropped from the final regulations. Whatever Treasury does next, expect the 2018 proposal to be the starting point. Notably, Treasury invoked §643(f) in those same §199A regulations to address taxpayers dividing assets among multiple non-grantor trusts to multiply the §199A threshold amount. If you want a template for what a QSBS anti-stacking rule might look like, this is the closest one on the books.

The operative terms are not crisply defined. “Principal purpose” and “substantially the same” grantors and beneficiaries leave real room, and reasonable structures can fall well on the right side of them. The government’s concern has consistently been tax-motivated fragmentation of what is substantively one economic arrangement — not the mere existence of multiple trusts.

What's Likely — and What Isn't

Treasury can issue regulations or sub-regulatory guidance interpreting §643(f) and the broader anti-abuse doctrines. Treasury likely cannot, however, simply rewrite §1202's statutory per-taxpayer framework by regulation alone.

Treasury's most likely move is a proposed regulation or notice articulating factors that cause multiple trusts to be aggregated for §1202 purposes — targeting structures with overlapping beneficiaries, common trustees acting in concert, or other "single economic unit" features. Any such guidance would most likely apply prospectively or include transition protection, though retroactivity is never fully off the table, particularly where anti-abuse doctrines, sham-trust theories, the step transaction doctrine, or §7805(b) effective-date authority are in play.

The bottom line: completed transactions likely carry materially lower regulatory risk than future planning structures, but facts, structure, and timing matter in every case. And one reason not to overreact: the operative tests under §643(f) are fact-intensive and not precisely bounded, so a structure built around genuinely distinct beneficiaries and real economic separation sits on the comfortable side of that line.

What to Do This Quarter

If you have an existing stacked structure:

• Document the non-tax purposes. Estate planning, creditor protection, generational wealth transfer, governance considerations — these are real, articulable reasons for separate trusts. Get them in the file now, not in response to a future audit notice.
• Confirm true separateness. The features that distinguish genuine separateness from tax-motivated fragmentation are the ones to focus on: distinct beneficiaries, independent trustees, no de facto common control, and separate administration. The government's concern is not "many trusts" — it's legal fragmentation that doesn't track economic substance.
• Do not add new trusts to an existing stack without fresh analysis.

If you are considering stacking:

• Move thoughtfully, but do not panic. Anti-abuse guidance, when it comes, would most likely apply prospectively or provide transition relief, even if retroactivity can't be ruled out entirely.
• Get the planning right the first time. A poorly documented stack is far more vulnerable if the IRS ever looks at it.
• Coordinate trust counsel, tax counsel, and corporate counsel. §1202 turns on facts at the corporate level (qualified trade or business, the $75M gross asset ceiling ($50M for stock issued on or before July 4, 2025), original issuance) and at the holder level (separate-taxpayer status). All three pieces have to line up.

Whichever camp you're in, the underlying qualification comes first: a QSBS attestation letter covering the gross assets test, active business analysis, and redemption history establishes that the stock is QSBS at all — stacking only multiplies an exclusion that actually exists.

The Bigger Picture

The OBBBA expansion made QSBS a much larger prize, which is exactly why Treasury is paying attention. The stakes also differ depending on when the QSBS was issued: structures built around the old $10M cap carry a different risk profile than new planning designed around the $15M OBBBA cap, and Treasury is most likely focused on the latter. Expect Treasury activity across §1202 generally over the next 12–18 months — not just stacking, but SAFE/convertible note holding periods, carried-interest interactions, and the qualified-trade-or-business test. The planning environment is more uncertain than it was a year ago.

Related reading: QSBS Trust Stacking: What Actually Works (and What Doesn't) · QSBS Attestation: What Your Letter Needs to Say · QSBS & Section 1202: The Complete Founder's Guide

If you've gifted QSBS into more than one trust — or are considering it — it's worth reviewing your structure with counsel before year-end. I work with founders, early employees, and investors nationwide on §1202 planning, attestation, and structuring. If you need your QSBS position documented before Treasury acts, start with a QSBS attestation letter — book an attestation intake. For trust-structuring questions, book a 20-minute call.

If Treasury guidance lands mid-hold, a standing annual attestation practice — QSBS Sentinel™ — is how your structure stays documented as the rules move.

Joe Wallin is a startup and tax attorney at Carney Badley Spellman in Seattle. He chairs the Angel Capital Association's Legal Advisory Committee and co-authored Angel Investing: Start to Finish (Holloway).

This post is for educational purposes only and is not legal or tax advice. Consult a qualified attorney about your specific situation.