QSBS Gross-Assets Test: $50 Million vs. $75 Million

A startup can be valued at $200 million and still make you ask a $75 million QSBS question.

Section 1202 does not test headline valuation. It tests aggregate gross assets under a statutory definition.

The threshold changed for stock issued after July 4, 2025

For stock issued on or before July 4, 2025, the legacy threshold is generally $50 million.

For stock issued after July 4, 2025, the threshold is $75 million for 2026, with inflation adjustment beginning for taxable years after 2026.

This transition is based on issuance date, not the acquisition-date rule used for the post-2025 exclusion regime.

The company has to pass two moments in time

The corporation generally must not exceed the applicable threshold before issuance and immediately after issuance, including the money or property just received.

Example: the financing itself pushes the company over

Corporation has $70 million of aggregate gross assets before issuing stock in 2026 and receives $10 million cash. Immediately after: $80 million. The new issuance fails the 2026 $75 million immediately-after test.

Aggregate gross assets are not company valuation

The test is not directly based on pre-money valuation, post-money valuation, fully diluted share value, enterprise value, or 409A value.

Section 1202 generally uses cash plus aggregate adjusted bases of other property, subject to special rules.

A high startup valuation does not automatically fail the test

A software company can have a $150 million venture valuation but statutory aggregate gross assets below the threshold because internally developed assets can have low tax basis. But contributed property creates a special FMV rule.

Contributed property has an FMV trap

For the gross-assets test, property contributed to the corporation is generally treated as having basis equal to its fair market value at contribution.

Example: low basis, high value

An LLC owns technology with $5 million tax basis and $80 million FMV and converts into a C corporation after July 4, 2025. Using $5 million would miss the special rule. The contributed property can be treated at $80 million for the gross-assets test, potentially causing failure.

Cash counts

Cash counts at face amount. Financing proceeds cannot be ignored merely because the company has not spent them.

What if a financing has several closings?

Near the threshold, reconstruct the actual issuance sequence: which shares issued at each closing, cash received, SAFE/note conversions, contributed property, and whether closings are treated separately under the facts.

Controlled corporations can be aggregated

Section 1202 contains controlled-group aggregation rules with a modified ownership threshold. A standalone balance sheet may not be enough.

Predecessors matter too

A newly organized corporation is not necessarily a clean slate where predecessor entities, conversions, reorganizations, or combinations are involved.

What happens if the company grows beyond the threshold later?

Later growth does not by itself retroactively disqualify earlier stock properly issued while the corporation satisfied the test. Continuing requirements still matter.

Later stock issuances can be different

Earlier shares can qualify while later shares from the same company do not. QSBS status cannot safely be assigned once at company level for every future share.

Option holders can encounter this problem

An option granted while assets are $20 million but exercised after the applicable threshold is exceeded does not automatically lock in the earlier status. The shares are issued at exercise.

SAFE investors can encounter the same issue

If a SAFE is not itself treated as stock and stock is issued later upon conversion, company facts at that later issuance can matter.

Stock issued for property requires two perspectives

At the corporation level, contributed-property FMV affects gross assets. At the shareholder level, Section 1202 contains separate basis rules for stock acquired in exchange for property. Do not collapse them.

Practical financing example

Company has $55 million aggregate gross assets in September 2026 and raises $15 million: immediately after = $70 million, below the 2026 $75 million threshold. Raise $25 million instead: immediately after = $80 million, potentially failing the new-share test.

What records matter?

Balance sheets, tax-basis schedules, financing closing statements, cash received, contributed-property records, FMV support, predecessor information, controlled-group schedules, and capitalization records.