How do you pay $0 in federal tax on a gain of up to $10M-$15M or even more? By selling qualified small business stock (QSBS) that you’ve held for more than 5 years.
What is even more amazing, is that the government has left it up to the taxpayer to self-report whether the gain qualifies for the 0% rate or not. If you believe your gain qualifies, on your Form 8949 you put a “Q” on page 2, part II, column f. This flows through to Schedule D of your 1040 and that’s the end of it.
Unless you are audited… in which case it would be super handy to have some proof that the stock was QSBS.
And so, the QSBS attestation letter was born.
Baker Tax Law has historically provided these letters but it wasn’t until Carta launched its QSBS attestation service at the end of 2023 that they term “QSBS attestation letter” became part of every founder’s vocabulary.
To be clear these letters are nice to have, not must have.
The benefit of using Carta is that certification of QSBS status is automatically delivered to the shareholders as part of the process. Carta’s attestation letter fee is $2,500 for companies that have less than 26 shareholders and $4,500 for companies that have 26 or more shareholders and $12,000 for retroactive letters.
If you don’t use Carta or otherwise would prefer Baker Tax Law provide an attestation letter, we’re happy to help. In particular, we can determine:
- Whether your company falls within an eligible industry;
- Whether your company exceeded the $50M test prior to the stock issuance;
- Whether your company has assets like cash, stock, or real estate which puts it at risk of violating the “active business” test;
- Whether your company repurchased stock such that it might have triggered a “significant redemption” black-out.
We charge a flat fee of $1,800 to review the relevant facts and prepare either (i) a QSBS attestation letter or (ii) a written response explaining why we do not believe the company would qualify. The flat fee assumes the engagement can be completed within 4 hours and is limited to the eligibility review and resulting letter or written response. Any additional work requested, or time required beyond 4 hours, would be billed at the firm’s standard hourly rates.
To request an attestation letter please reach out to Lisa Okragly, lisa@mbakertaxlaw.com
Mike Baker frequently advises with respect to qualified small business stock. He possesses a breadth and depth of experience in tax and employee benefits & compensation law that spans multiple decades. For additional information, please contact mike@mbakertaxlaw.com.