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ARTICLE · 01 NOVEMBER 2020

Section 1202 Tax Planning: Avoid Losing The Gain Exclusion!

Frost Brown Todd
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Our Section 1202 tax articles and blog posts usually take an in-depth dive into the workings of QSBS planning issues. Today we are going to switch gears and focus instead on a couple of cautionary...

United StatesTax
Scott Dolson
Scott Dolson

Beware of Mixing Section 1202's Version of Oil and Water - S Corporations and QSBS

Our Section 1202 tax articles and blog posts usually take an in-depth dive into the workings of QSBS planning issues. Today we are going to switch gears and focus instead on a couple of cautionary tales of lost tax savings opportunities.

This article is one of a series of blog posts addressing planning issues relating to qualified small business stock (QSBS) and the workings of Sections 1202 and 1045 of the Code.

The First Cautionary Tale

This story involves several friends who start up a successful software app business. Their original tax advisor recommends that they operate the business through an S corporation (children might ask, "why did the old lady swallow the fly? I don't know why - maybe she'll die"). A few years later, the business is converted to a C corporation during a financing round. After several more financing rounds and years of successful growth,

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