A Look at Search Funds and Section 1202 Qualified Small Business Stock

Attorneys Kevin Christmas, Brandon Bloom, Francesco Salpietro and Sanaa Ghanim of Holland & Knight's corporate and tax practices co-authored a Journal of Robotics, Artificial Intelligence & Law article examining Internal Revenue Code Section 1202, highlighting its significance for search funds and eligibility criteria. The authors explain the "active business" requirement, noting the need to maintain asset usage within a corporation to qualify for Section 1202 benefits. They advise careful consideration of stock redemption rules, which, if not adhered to, can disqualify stock as qualified small business stock (QSBS). The article also discusses the decision of operating as a C corporation versus a pass-through entity and how to structure rollover transactions to preserve QSBS status, ensuring that the benefits of Section 1202 are maximized without unintended tax consequences for non-rollover investors.

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