Documentation Is Key When Claiming QSBS Benefits

In recent years, the utilization of qualified small business stock ("QSBS") under Section¹ 1202 has grown considerably. Many businesses are formed as corporations at conception, private equity investors calculate the tax benefits from Section 1202 into their ROI calculations, and many businesses taxed as partnerships incorporate to utilize Section 1202 for future appreciation. While the utilization of Section 1202 has grown considerably (and this code provision has been in effect since 1993), there is virtually no authority interpreting that Section; there are around a dozen private letter rulings and one case under a companion provision, Section 1045. However, in March of last year, the first Section 1202 case came out from the Court of Federal Claims, JU et al v. USA.²Ju highlights the importance of strong documentation for taxpayers when claiming the exclusion under Section 1202.