Resources for Attorneys & CPAs
Short, factual references you can use on your own files, or hand to a client while you decide whether a deeper structuring analysis is worth bringing in. These are starting points, not a substitute for a review of your specific transaction.
QSBS Eligibility: What to Check Before You Advise a Sale
- Is the issuing entity a C corporation, and was it one at the time the stock was issued?
- Was the stock acquired directly from the corporation (not on the secondary market) in exchange for money, property, or services?
- Does the corporation meet the active trade or business requirement, and is it outside an excluded industry (professional services, banking, hospitality, and similar fields are generally excluded)?
- Did the corporation stay under the gross-asset limit at and immediately after the stock was issued?
- Has the stock been held long enough to qualify for the exclusion under current law?
- Has there been an F reorganization, conversion, or other structural change that could affect the original issuance date or eligibility?
F Reorganization: Quick Reference
- Used to insert a new holding company above an existing S corporation or LLC, typically ahead of a sale, an equity rollover, or new investment.
- Preserves the target's tax history and existing elections (like an S election) inside a new corporate structure the buyer or investor can work with.
- Often requested by buyers structuring around a 338(h)(10) or 336(e) election, or by sellers who want rollover equity in a cleaner entity.
- The mechanics and sequencing matter: done incorrectly, it can jeopardize the S election or QSBS eligibility it was meant to preserve.
Section 338(h)(10) vs. 336(e) Elections: At a Glance
- Both let a qualifying stock purchase be treated as an asset purchase for tax purposes, giving the buyer a stepped-up basis in the target's assets.
- 338(h)(10) requires the buyer to be a corporation and generally applies to S corporation targets or corporate subsidiaries within a consolidated or affiliated group.
- 336(e) is available in a broader range of situations, including sales to non-corporate buyers, and is made unilaterally by the seller rather than jointly with the buyer.
- Both elections change how purchase price allocation is negotiated. Whether either one benefits your client depends on the target's asset mix and the buyer's and seller's relative tax positions.