Editor: Mark G. Cook, CPA, CGMA

Sec. 1202 was enacted to incentivize investment in certain small businesses by permitting gain exclusion upon the sale of qualified small business stock (QSBS). This 30yearold Code section is very popular, especially since 100% of gain is excluded for QSBS issued after 2010. However, due to limited guidance from the IRS and Treasury, taxpayers are often left wondering whether they hold stock in a company that is engaged in a qualified trade or business (QTB), which is one of the subrequirements to qualify for the exclusion. This discussion explores the question of how to determine whether a company is engaged in a QTB.

For purposes of the QSBS exclusion, a QTB does not include performing services in certain fields: health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business in…

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