IRS Issues Guidance On QSBS Qualification For Software Company

The IRS recently published private letter ruling (PLR) 202319013 regarding the application of internal revenue code (IRC) Section 1202 to a software company. In a taxpayer favorable ruling, the IRS determined that an enterprise cloud application services software company could be eligible for the gain exclusion under Section 1202 as a qualified small business. More specifically, the IRS ruled that the software company was not engaged in a (disqualified) trade or business where the principal asset of such trade or business was the reputation or skill of 1 or more of its employees. Instead, the IRS found that the principal asset of the Company was the intellectual property held by the Company itself.