Can Qualified Small Business Stock (QSBS) survive an acquisition? Often, yes. While mergers, acquisitions, and recapitalizations can threaten valuable tax benefits under Code Section 1202, properly structured transactions may allow founders to preserve QSBS treatment, continue their holding period, and maintain eligibility for future gain exclusion.

Purchase price allocation is one of the most important — and heavily negotiated — tax components of a taxable business acquisition. Although buyers and sellers often focus initially on headline purchase price, the manner in which that purchase price is allocated among the target’s assets can significantly affect the after-tax economics of the transaction for both parties.

Because buyers and sellers frequently have competing tax objectives, purchase price allocation negotiations can become contentious, particularly where depreciation recapture, ordinary income treatment, amortizable intangibles, and goodwill are involved.

One of the core requirements for Qualified Small Business Stock (“QSBS”) treatment under Section 1202 is the corporation’s compliance with the statutory gross asset limitation. Historically, a corporation could qualify only if its aggregate gross assets did not exceed $50 million at any time before and immediately after the issuance of the relevant stock.

However, the One Big Beautiful Bill Act (“OBBBA”), enacted on July 4, 2025, significantly expanded the Section 1202 regime for stock issued after that date. Among the most important changes was an increase in the gross asset threshold from $50 million to $75 million, with inflation adjustments beginning after 2026.

Founders, early employees, and service providers who receive restricted stock in a startup are often told to “file the 83(b) election immediately.” Unfortunately, the importance of the filing is sometimes not fully appreciated until after the 30-day deadline has passed. At that point, both the recipient and the company may face significant and unexpected tax consequences.

Although a missed 83(b) election can create serious issues, there are still practical and legal steps that may reduce the damage going forward. Understanding the consequences and available options is essential for both the individual and the company.