Structuring for Expanded Benefits of Qualified Small Business Stock Under the OBBBA

Olshan tax associate Aime Salazar published an article in Tax Notes (subscription required) entitled “Structuring for Expanded Benefits of Qualified Small Business Stock Under the OBBBA.” In the article, Aime explores the challenges and opportunities that existing Qualified Small Business Stock (QSBS) holders and new investors face under section 1202, as revised by the One Big Beautiful Bill Act (OBBBA). She discusses common pitfalls that existing QSBS holders should be mindful of given these developments to qualify for the expanded benefits under the Act in undertaking corporate reorganizations, leveraged distributions, and promissory notes. “If holders of QSBS with issue dates straddling the OBBBA’s enactment date want a chance to realize the full gain exclusion benefit on exit, they must reckon with the complexities involved in keeping track of the different requirements applicable to batches of QSBS issued before the enactment date, while also making sure that the QSBS issuer complies with the revised requirements under the statute,” Aime notes. “In contrast to existing QSBS holders, new investors will find it easier to access the expanded QSBS benefits.” She gives insights for high-risk or rapidly cyclical industries, such as the fashion, technology and energy sectors, as well as for private equity sponsors and startups that formed as limited liability companies and are considering whether and when to convert to a C corporation to be eligible for QSBS treatment. “For private equity sponsors whose carried interests are pegged to the three-year holding period under section 1061, factoring in this change under section 1202 may broaden the scope of potential acquisitions,” Aime says.