TCP Investment Planning · Updated November 2026
QSBS: Why Can Startup Stock Receive Special Tax Treatment?
QSBS can provide favorable treatment for qualifying gain, but every statutory requirement matters.
Qualified corporation
The stock must relate to a qualifying domestic C corporation meeting the applicable statutory requirements.
Original issuance
How the taxpayer acquired the shares matters. Direct original issuance can differ from buying shares from another investor.
Holding period
Long-term holding requirements are central to potential exclusion treatment.
Active business requirements
The company must satisfy applicable qualified-business and asset tests, so not every small corporation qualifies.
The takeaway
Section 1202 rewards qualifying long-term investment in certain small C corporations, not startup stock generally.
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FAQ
Is every startup stock QSBS?
No.
Does original issuance matter?
Yes.
Does the holding period matter?
Yes.