MAS LLC

Tax Advisory & Consulting Services

QSBS Eligibility Evaluation and Ongoing Compliance Consulting

Expanded Advisory Services for New and Existing Clients

February 2026

Jessica Irving Marschall, CPA, ISA AM

President & CEO, MAS LLC

Fredericksburg, Virginia

Why QSBS Matters More Than Ever

The Qualified Small Business Stock exclusion under Internal Revenue Code Section 1202 has always been one of the most powerful tax benefits available to founders, investors, and early employees of qualifying C corporations. With the enactment of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, that benefit became even more substantial. The new law increased the per-issuer gain exclusion cap from $10 million to $15 million, raised the aggregate gross assets threshold from $50 million to $75 million, and introduced a graduated holding period structure that provides partial exclusions beginning at just three years.

These enhancements have generated an unprecedented wave of interest from business owners evaluating C corporation conversions, entity restructurings, and QSBS qualification strategies. However, the expanded benefits come with equally expanded compliance obligations. A single misstep (a missed Section 83(b) election, a breach of the active business test, an inadvertent S corporation election) can permanently disqualify shareholders from the exclusion and result in millions of dollars in avoidable tax liability.

MAS LLC is now offering dedicated QSBS Eligibility Evaluation and Ongoing Compliance Consulting engagements as a formal service line, available to both new and existing clients. These engagements are designed to provide the rigorous technical analysis, documentation, and monitoring that QSBS qualification demands from initial evaluation through eventual exit.

The Current QSBS Landscape Under the OBBBA

For stock issued after July 4, 2025, the OBBBA provides the following enhanced framework:

Provision	Post-OBBBA Rule (Stock Issued After July 4, 2025)
Gain Exclusion at 3+ Years	50% of qualifying gain excluded
Gain Exclusion at 4+ Years	75% of qualifying gain excluded
Gain Exclusion at 5+ Years	100% of qualifying gain excluded
Per-Issuer Exclusion Cap	Greater of $15 million or 10x adjusted basis (inflation-adjusted beginning 2027)
Gross Assets Threshold	$75 million (up from $50 million)
Active Business Requirement	80% of assets used in qualified trade or business (unchanged)

These changes apply prospectively only. Stock issued before July 4, 2025 remains subject to the prior rules, including the full five-year holding period requirement for any exclusion. The distinction between pre- and post-OBBBA stock is a critical element of every eligibility evaluation we perform.

What QSBS Eligibility Evaluation Requires

Determining whether a shareholder’s stock qualifies for the Section 1202 exclusion is not a simple checkbox exercise. It requires a thorough analysis of four foundational requirements, each containing technical nuances that can affect qualification.

The Four Pillars of Qualification

1. C Corporation Status

The issuing entity must be a domestic C corporation at the time of stock issuance and must remain so for substantially all of the shareholder’s holding period. Stock issued by an S corporation can never qualify as QSBS, even if the entity subsequently converts to C status. An inadvertent or temporary S election can permanently destroy QSBS eligibility for all outstanding shares. Our evaluation confirms entity classification history and identifies any periods that may jeopardize qualification.

2. Original Issuance

Stock must be acquired directly from the corporation at original issuance in exchange for money, property (other than stock), or as compensation for services. Secondary market purchases do not qualify. Stock options are not QSBS; rather only the shares acquired upon exercise may qualify, and the holding period begins at exercise, not grant. Our evaluation traces each shareholder’s acquisition chain to confirm original issuance and identify any transfers that may have broken the chain.

3. Qualified Small Business (Gross Assets Test)

At the time of stock issuance, the corporation’s aggregate gross assets must not exceed $75 million (for post-OBBBA stock) both before and immediately after the issuance. Aggregate gross assets include cash plus the adjusted bases of all other property, with contributed property valued at fair market value rather than carryover basis. Assets of more-than-50%-owned subsidiaries are included on a consolidated basis. We calculate aggregate gross assets at each issuance date, accounting for contributed property valuations, subsidiary look-through rules, and the impact of bonus depreciation and Section 174A expensing on asset bases. We also work with a highly skilled team of independent business valuators who can provide separate annual attestation reports to ensure compliance.

4. Active Business Requirement (80% Asset Test)

During substantially all of the shareholder’s holding period, at least 80% of the corporation’s assets by fair market value must be used in the active conduct of a qualified trade or business. Excluded businesses include professional services (health, law, accounting, consulting, engineering, architecture, financial services, athletics, performing arts), banking and insurance, farming, mining, hospitality, and real property businesses. The “celebrity test” also excludes any business whose principal asset is the reputation or skill of one or more employees.

Technology and software companies generally qualify because they create and sell products rather than primarily selling employee services. Our evaluation analyzes business activities against the statutory exclusion list, reviews asset deployment to confirm the 80% threshold is maintained, and identifies working capital or investment holdings that could jeopardize compliance.

Our QSBS Advisory Service Offering

MAS LLC’s QSBS engagements are structured in two complementary phases: an initial eligibility evaluation and ongoing compliance monitoring. Clients may engage either phase independently. As mentioned above, we can also recommend and integrate an independent business valuation team to provide the annual valuations to ensure asset value compliance. This is especially important with intangible assets.

Phase I: QSBS Eligibility Evaluation

The initial evaluation is a comprehensive analysis of whether a corporation’s stock qualifies (or can be structured to qualify) for the Section 1202 exclusion. This engagement includes:

• Entity Classification Review. Confirmation of domestic C corporation status at issuance and throughout the holding period, including review of formation documents, any S election history, and state-law entity conversions.
• Stock Issuance Analysis. Tracing each shareholder’s acquisition to confirm original issuance, identify the consideration exchanged, and determine whether the holding period has commenced. This includes analysis of option exercises, SAFE conversions, Section 351 transfers, and restricted stock grants.
• Gross Assets Calculation. Determination of aggregate gross assets at each relevant issuance date, incorporating contributed property at fair market value, subsidiary consolidation, and the impact of depreciation and R&D expensing elections on adjusted bases.
• Active Business Test Assessment. Analysis of whether the corporation’s trade or business qualifies under Section 1202(e)(3), including evaluation of the 80% asset deployment threshold, working capital reasonableness, and classification of revenue-generating activities against the statutory exclusion list.
• Section 351 Transfer Review (if applicable). For businesses converting from LLC or partnership form, verification that the 80% control test was satisfied, boot was avoided, Section 357(c) excess liability issues were addressed, and the conversion method (check-the-box, assets-over, or interests-over) was properly executed and documented.
• Section 83(b) Election Verification. For restricted stock recipients, confirmation that the 83(b) election was timely filed within the 30-day statutory deadline and properly delivered to both the IRS and the employer.
• 409A Valuation Coordination. Review of existing 409A valuations for consistency with QSBS requirements, identification of stale or invalidated valuations, and coordination with independent appraisers to ensure safe harbor compliance. Note: MAS LLC does not perform 409A valuations due to independence requirements but provides advisory guidance on timing, methodology, and appraiser selection.
• Redemption Risk Analysis. Evaluation of historical and planned stock repurchases to confirm de minimis thresholds have not been exceeded within the applicable testing windows.
• State Conformity Assessment. Identification of state-level QSBS treatment for each shareholder’s state of residence, including states that do not conform (California, Alabama, Mississippi, New Jersey, Pennsylvania) and states with partial conformity.
• Written Eligibility Memorandum. Delivery of a formal memorandum documenting findings, qualification status, identified risks, and recommended remediation steps. This memorandum serves as the foundation of the client’s QSBS defense file.

Phase II: Ongoing Compliance Monitoring

QSBS qualification is not a one-time determination. The active business requirement must be satisfied for substantially all of the shareholder’s holding period, and numerous events can trigger disqualification after initial eligibility is established. Our ongoing monitoring engagement includes:

• Quarterly Asset Composition Review. Periodic assessment of asset deployment to confirm the 80% active business threshold is maintained, with particular attention to cash accumulation, portfolio investments, and non-operating assets that could breach the test.
• Annual QSBS Status Letter. Preparation of an annual attestation letter confirming the corporation’s continued qualification as a QSBS issuer, to be maintained in each shareholder’s documentation file. Also, aligning with the independent business valuator to include their annual valuation results within this letter.
• New Issuance Review. Analysis of each new stock issuance to confirm qualification, including updated gross assets calculations and verification that the issuance does not create control or boot issues.
• Redemption Monitoring. Tracking of stock repurchases against de minimis thresholds to prevent disqualifying redemption events.
• Business Activity Monitoring. Review of any changes in business operations, revenue sources, or strategic direction that could affect qualification under the excluded business list.
• Legislative and Regulatory Monitoring. Tracking IRS guidance, proposed regulations, and statutory changes that may affect QSBS rules or create new planning opportunities.
• Pre-Exit Planning Support. When an exit event approaches, preparation of the documentation package necessary to support the Section 1202 exclusion on Schedule D, including holding period verification, basis calculations, and gain allocation between excludable and non-excludable amounts.
• Section 1045 Rollover Analysis. For shareholders considering a sale before the five-year holding period, evaluation of whether a tax-deferred rollover into replacement QSBS under Section 1045 is available and advantageous.

Common Disqualification Events We Monitor

Many of the events that destroy QSBS eligibility are irreversible. Once qualification is lost, it cannot be restored for the affected shares. Our monitoring is specifically designed to prevent the following:

Disqualifying Event	Why It Matters
S Corporation Election	Immediately and permanently destroys QSBS status for all outstanding shares. Cannot be reversed by converting back to C status.
Active Business Breach	If less than 80% of assets are used in a qualified business for a substantial period, all shares lose qualification. Excessive cash, portfolio investments, or a shift to excluded services are common causes.
Significant Redemptions	Stock buybacks exceeding de minimis thresholds within specified testing windows can disqualify shares. Both per-shareholder and aggregate tests apply.
Business Character Change	Pivoting from a qualified business (e.g., software) to an excluded business (e.g., consulting) during a substantial portion of the holding period disqualifies stock.
Foreign Development	For technology companies, software development performed by non-U.S. personnel may jeopardize the active business requirement.
Missed 83(b) Election	The 30-day filing deadline is statutory and cannot be extended. Missing it delays the holding period start to the vesting date, potentially adding years to the required holding period.

Who Should Engage These Services

Our QSBS advisory engagements are designed for:

• Founders and early employees of C corporations who hold or will receive equity and anticipate a future exit event.
• Business owners evaluating a conversion from LLC, partnership, or S corporation form to C corporation status under Section 351 to capture QSBS benefits.
• Angel investors and venture participants who have invested directly in qualifying C corporations and want to protect and maximize their exclusion.
• Companies approaching an exit that need to assemble the documentation necessary to support the Section 1202 exclusion on their tax returns.
• Existing MAS LLC clients whose current business structures may benefit from QSBS planning in connection with broader tax advisory and entity restructuring strategies.
• Attorneys and financial advisors seeking a qualified CPA to provide technical QSBS analysis for their clients as part of a coordinated advisory team.

Illustrative Tax Savings

The following illustration demonstrates the potential value of proper QSBS planning under the current post-OBBBA rules for stock issued after July 4, 2025:

Scenario	Without QSBS	With QSBS (5+ Years)
Business Value at Conversion	$5,000,000	$5,000,000
Sale Price (Year 6)	$50,000,000	$50,000,000
Capital Gain	$45,000,000	$45,000,000
QSBS Exclusion (100%, capped at $15M)	—	($15,000,000)
Taxable Gain	$45,000,000	$30,000,000
Federal Tax (23.8%)	$10,710,000	$7,140,000
Federal Tax Savings	—	$3,570,000

Note: This illustration assumes a single taxpayer. The exclusion cap applies per-taxpayer, per-issuer. Gifting QSBS to family members or non-grantor trusts before sale can multiply the total exclusion available. State tax treatment varies by jurisdiction. Additional savings may be available through the alternative 10x basis cap.

Engagement Structure and Next Steps

Both services are available under fixed-fee engagement letters. The scope, timeline, and deliverables are tailored to each client’s entity structure, number of shareholders, and complexity of prior transactions.

	Phase I: Eligibility Evaluation	Phase II: Ongoing Compliance
Engagement Type	Project-based (one-time)	Annual retainer
Typical Timeline	4–6 weeks	Ongoing (quarterly reviews)
Primary Deliverable	Written Eligibility Memorandum	Annual Status Letter + Quarterly Monitoring Reports
Available To	New and existing clients	New and existing clients

To initiate an engagement or to discuss whether your business may qualify for QSBS treatment, contact MAS LLC to schedule a consultation.

Contact

Jessica Irving Marschall, CPA, ISA AM

President & CEO, MAS LLC

375 White Oak Road, Fredericksburg, Virginia 22405

Info@MarschallTax.com  |  (414) 217-0147

www.MarschallTax.com

Disclaimer

This article is provided for general informational purposes only and does not constitute legal or tax advice. The application of tax law to specific situations requires analysis of particular facts and circumstances. Readers should consult with qualified legal and tax advisors before taking action based on the information contained herein. Circular 230 Disclosure: To ensure compliance with Treasury Department regulations, we advise that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code.