Section 1202 requires original issuance. Your stock has to have come from the company itself, in exchange for money, property, or services. That single requirement decides most tender offer and secondary questions, and it decides them in opposite directions depending on which side of the trade you’re on.
Buying in a tender: not QSBS
If you buy a colleague’s shares in a tender offer, or an early employee’s shares on a secondary marketplace, or a founder’s shares directly, you’re a secondary purchaser. The shares may have been QSBS in the seller’s hands; the exclusion doesn’t travel with them. Your shares aren’t QSBS at any holding period, and five years of patience won’t change that.
The same applies to an SPV or fund that buys secondary shares and passes the position through to you. A partnership can pass QSBS treatment to its partners, but only for stock the partnership acquired at original issuance while you were a partner. Ask before you wire.
Selling into a tender: a sale like any other
Selling your own shares into a tender offer is a disposition, and if your shares qualified and you’ve reached a tier, the exclusion applies exactly as it would on an acquisition. This is what the QSBS calculator prices. The date of the tender against your tier dates is the whole question; a tender that lands a month before a milestone is a good reason to sell only part of a position, or none of it.
If you haven’t reached a tier and have to sell anyway, a Section 1045 rollover can carry the holding period into new QSBS, provided you’ve held more than six months and reinvest within 60 days.
The redemption rules
There’s a quieter problem when the company is the buyer. A tender offer where the company itself repurchases shares is a redemption, and Section 1202 has rules designed to stop companies from recycling old stock as new QSBS. Two windows matter:
- Stock isn’t QSBS if, within two years before or after it was issued, the company redeemed stock from you or a related person, beyond a small de minimis amount.
- Stock isn’t QSBS if, within one year before or after it was issued, the company made “significant” redemptions, generally more than 5% of the aggregate value of all its stock.
So a company-funded buyback can void QSBS status for shares issued to other investors around the same time, including a round that closed a few months earlier. The regulations carve out redemptions on termination of employment, death, disability, and divorce, and the thresholds have some give. But if a company you hold is running a buyback near a financing, this is a question worth putting to a CPA before the exit rather than after. Investor-led tenders, where a third party buys and the company merely facilitates, aren’t redemptions.
What counts as original issuance
Stock you bought in a priced round. Stock a SAFE or convertible note converted into. Shares you received by exercising options or on the settlement of RSUs, since those are issued by the company as compensation. Stock received by gift or inheritance from someone who acquired it at original issuance, with their holding period intact. Stock received in certain reorganizations in exchange for QSBS. What’s never on the list is a purchase from another holder, however the trade was arranged. This is general information, not tax advice.