Qualified Small Business Stock (QSBS) Attestation Letter

QSBS exclusion is a tax benefit Section 1202 of the IRC offers to eligible shareholders to encourage startup funding and investments. However, some stakeholders and small businesses are unaware of how to fully benefit from this tax break, from owning QSBS shares to selling them later.

That’s why at Eqvista, we offer QSBS attestation letter services so businesses can help shareholders secure possible tax benefits. The attestation letter verifies the shareholder’s eligibility for QSBS and gives the investor or employee the necessary paperwork to file their taxes when selling their shares. Investors also request a QSBS attestation letter in the Seed to Series B stages of a company’s financing.

Why Choose Eqvista for QSBS Attestation?

QSBS Attestation is an important aspect of your tax savings and investor appeal, so you must receive it from a service provider that prioritizes quality. Here’s why you can choose Eqvista.

• Unmatched expertise: Our team is up-to-date with the latest knowledge of all QSBS regulations, so you can be sure your attestation is current and always in compliance with IRS guidelines.
• Process efficiency: We constantly improve our workflow to save you time. Since we have access to your cap table, you can avoid submitting financial records. We will verify your QSBS eligibility for every valuation.
• Client-centric service: Our expert team offers customized services according to your business requirements. You will have a dedicated staff to help you throughout the service.
• Expert-backed, fairly priced: QSBS attestation letters from $1,000, prepared by our NACVA-certified valuation team, the same specialists who handle your 409A. You get audit-defensible documentation without paying law-firm markups.
• Data security: You will have access to our “Data Room”, where we secure and encrypt all data. Our methods provide safe document sharing and storage for data safety.
• Proactive alerts: Eqvista’s team will notify you of your QSBS eligibility. We will share the verification outcomes so you can make informed equity decisions.

Qualified Small Business Stock (QSBS) gives early investors and founders a 100% exemption on capital gains taxes for up to $15 million or 10X the investment, whichever is greater.

Tomas Milar

Founder & CEO

What Your QSBS Attestation Letter Includes

A QSBS Attestation Letter is more than just a simple statement; it’s a formal declaration containing specific representations required to substantiate a shareholder’s claim for tax benefits under Section 1202 of the Internal Revenue Code. When you get a professionally prepared letter from Eqvista, it is structured to provide the necessary evidence for both your company and your investors.

Here’s a breakdown of the core components your letter will contain:

1. C-Corporation Status & Original Issuance

The letter begins by establishing the foundational requirement: that the company was a domestic C-Corporation when the stock was issued. It will also state that the shares were acquired by the shareholder at their “original issuance” directly from the company (or its underwriter), not on a secondary market. This is the starting point for all other qualifications.

2. The Gross Assets Test

This is an important, time-sensitive test. The letter must attest that the aggregate gross assets did not exceed more than $50 million at any time before the stock was issued, and immediately after the issuance. Our process involves reviewing your company’s balance sheets to verify and formally represent that this condition was met on the specific date of issuance.

3. The Active Business Requirement

To qualify for QSBS, the company must use at least 80% of its assets to actively run one or more businesses. The letter will confirm that the company met this rule for most of the time the investor held the stock.

4. Representations Regarding Redemptions

Section 1202 includes rules to prevent abuse of the tax incentive. The letter must include representations that the corporation did not engage in significant stock redemptions that would disqualify the shareholder’s stock. This generally covers redemptions made from the shareholder (or related persons) within a four-year period beginning two years before the stock was issued.

By including these four key attestations, the letter provides a comprehensive, audit-ready document that gives investors confidence and robust evidence to support their QSBS tax exclusion claim.

Our Process

Eqvista offers QSBS Attestation in just three steps:

• Consultation: To begin with, we will have a brief discussion with you. In this stage, you can explain your company structure along with its goals and we will present the benefits of QSBS for you. It helps in proper organization of our strategy per your specifications.
• Assessment: Our specialists analyze your finances and stock issuances to verify the information against the criteria for QSBS qualification. We will run a more in-depth review of your business type, asset thresholds, time of asset holding, and more. It helps us affirm your eligibility to QSBS.
• Attestation: We will issue your QSBS attestation letter if you qualify. You will need this document for your investors’ tax planning.

Note: Eqvista’s services don’t stop here. We offer continuous support to help keep your QSBS status as your company grows.

QSBS Attestation Letter Services FAQs

Here we’ve compiled answers to the most common questions we hear about the QSBS attestation process.

Is a QSBS attestation letter legally required to claim the tax exemption?

While there is no law that explicitly requires you to have a letter, it is considered an essential piece of documentation and a best practice. This letter serves as the company’s primary evidence that its stock met the necessary criteria at the time of issuance. Without it, substantiating a QSBS claim can be extremely difficult and risky.

Who signs the attestation letter?

An authorized officer of the company, like the CEO, CFO, or President, should sign the letter. The person signing needs to know enough about the company’s operations, finances, and records to confirm the statements in the letter are true.

How often do I need to get a new letter?

You generally need one letter for each round of stock issuance. The QSBS tests are performed on a specific date, the date the stock is issued. If you received shares in a Seed round in 2021 and additional shares in a Series A round in 2023, you should ideally have a separate attestation letter for each issuance, as the company’s financial status could have changed between the rounds.

When is the best time to get a QSBS attestation letter?

The best time is at or shortly after the stock is issued. At that point, the company’s financial records are current, and the facts are easily verifiable. However, letters can also be prepared retroactively, which is a common need.

Eqvista specializes in analyzing historical records to produce accurate retroactive attestations for past financing rounds.

Does receiving this letter guarantee I will get the QSBS tax benefit?

No. The attestation letter is powerful evidence that the company met its side of the QSBS requirements. However, the shareholder must still meet their own obligations, most notably the five-year holding period. This letter provides the corporate-level proof needed to support your claim.

What if my company was an LLC when I joined but later converted to a C-Corp?

For QSBS purposes, the holding period begins when stock is issued by a C-Corporation. If you held LLC membership units that converted into C-Corp stock, your QSBS holding period starts on the date of the conversion. The attestation letter would be prepared to reflect the company’s status as a C-Corp immediately following that conversion.

Get Your QSBS Attestation Process Started Today

Making any significant financial decision requires expert assistance because maximizing the tax benefits of QSBS might be difficult to understand. Eqvista and our expert team are here to assist.

“I use Eqvista 409a Valuation for my client’s 409A valuations and QSBS support letters. Eqvista provided the main support plus additional support, like QSBS support letters, and has stock ledger services.” – G2 review

With Eqvista’s QSBS Attestation, you can avail of our expert guidance to get zero tax liability. Eqvista further simplifies it by verifying your QSBS eligibility every time you request a 409A valuation.

Our NACVA-certified team delivers audit-defensible valuation reports that will help confirm your eligibility for tax exemption. With our team of licensed experts, distinctive approach, and competitive price, it’s easy. Get started with our free initial consultation!