Converting an S-Corp to a C-Corp to make it QSBS compliant

June 16, 2021

by a searcher from Claremont McKenna College in San Francisco Bay Area, CA, USA

assuming the criteria are met, seems like the conversion of a S-Corp to a C-Corp can be made to be compliant with QSBS, Section###-###-#### i.e. avoid paying federal capital gain tax up to $10 M per investor, if stock held 5+ years)?

has anyone done a conversion, or any CPA who can comment? looks like the QSBS-compliant stock must be issued by the company (not acquired from a shareholder).

redacted

Reply by a searcher
from Claremont McKenna College in San Francisco Bay Area, CA, USA

Thanks for these notes (nice to see ^redacted‌ accomplish that). I'm seeking to personally acquire an S-Corp (stock purchase), then convert to it to a C-Corp and have C-Corp issue QSBS-compliant stock (recap) to my family and new investors. Wondering if I will need a formal valuation/letter (from a CPA) at the time of issuance of the QSBS-compliant stock (to establish the cost basis)?

Reply by a professional
from Georgetown University in Houston, TX, USA

One of the requirements is that the corporation be a C corp since the stock was issued. If the corporation converts before the stock is issued, the it might work. If you convert after the stock is issued, no QSBS because the corporation was not a C corp during the entire holding period. A recap or some sort of redemption - reissuance transaction may not work to cure either due to some of the anti-abuse rules.

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