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The below applies to a US company

I have started at a company where I have received stock that has a 1 year cliff and a 4 year vesting schedule. I earlier exercised my stock and filled out a 83b form. Two months after I started, the company will raise money valuing the company over 50M.

Timeline:

  • t0: early exercise shares that are unvested (FMV of company is 20M)

  • t1 (3 months from t0): company raises money at 100M

  • t2 (12 months from t0): 1/4 of stock vests

The first question, will the QSBS tax reduction apply to all the stock I early exercised despite the fact it was not yet vested? If not, will the reduction apply to the stock when it vests? It is unclear if the " issuance of such stock" applies to when I early exercied or when the stock will vest.

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According to https://www.qsbsexpert.com/83b-elections-and-qsbs/, all your shares will qualify for QSBS as long as you meet all the other conditions:

According to the Code of Federal Regulations and its subchapter on income tax,

“Under section 83(f), the holding period of transferred property to which section 83(a) applies shall begin just after such property is substantially vested. However, if the person who has performed the services in connection with which property is transferred has made an election under section 83(b), the holding period of such property shall begin just after the date such property is transferred.”

We determine this to mean that if the shares issued to an individual by the corporation meet all necessary conditions in Section 1202, and if the shareholder files an 83(b) election in a timely manner, then the 5 year holding period begins on the date the restricted shares were issued.

They reference restricted stock units, but I have no reason to think it would be different with stock options.

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