Qualified Small Business Stock (QSBS) under IRC Section 1202 has become a frequent topic in deal rooms and tax planning conversations. For Arch Canyon, it is not new. Our professionals have been valuing equity interests for QSBS purposes for nearly a decade — long before the current wave of attention — and we bring that depth of experience to every engagement.

QSBS planning and compliance turn on more than a headline exclusion percentage. Timing, stock eligibility, original issuance, holding periods, and the interaction of successive issuances all matter. So do the valuation questions that sit underneath: what the company was worth at contribution or conversion, how to support a tax basis step-up, and how to document values that will stand up if the IRS asks.

Arch Canyon prepares independent, well-supported valuations that attorneys, CPAs, and founders can rely on when QSBS is on the table. Our work is designed to be reasoned, supportable, and defensible.

Arch Canyon provides valuation services. We do not provide legal or tax advice. QSBS eligibility and tax outcomes depend on facts and the advice of qualified counsel and tax advisors.

What QSBS valuation is (and is not)

Section 1202 provides a framework under which gain on the sale of qualifying stock in certain domestic C corporations may be eligible for exclusion, subject to statutory requirements and limitations. Whether stock qualifies — and how much exclusion may be available — is a legal and tax determination made by counsel and tax advisors based on the statute, regulations, and the taxpayer’s facts.

Valuation sits beside that analysis. Independent appraisals are commonly used to support fair market value conclusions at key moments in a QSBS narrative, including (depending on the facts):

• Contributions of property in exchange for stock
• Conversions or restructurings intended to position equity as C corporation stock
• Original issuances and subsequent rounds where FMV documentation matters
• Basis and built-in gain questions tied to contributed assets or prior entity history
• Multi-date analyses when planning or compliance requires values at more than one point in time

A valuation does not create QSBS status. It documents value conclusions that advisors may need as part of a broader eligibility and compliance file.

When QSBS-related valuations are needed

Counsel and tax advisors frequently request valuation support when:

• An LLC or other pass-through is converting to a C corporation in connection with QSBS planning
• Founders or investors are receiving stock at original issuance and need contemporaneous FMV support
• Property is contributed to a corporation and basis / FMV documentation is required
• The capitalization includes multiple classes of equity and relative values matter
• A reorganization or restructuring may affect the QSBS analysis and contemporaneous values are needed
• Advisors are assembling a file that anticipates future IRS questions about value at issuance or conversion

Early coordination with valuation professionals often reduces rework. Valuation dates, stock classes, and transaction sequencing should be clear before models are locked.

High-level context advisors typically consider (not legal advice)

Without giving legal or tax advice, valuation engagements for QSBS often intersect with themes counsel and CPAs evaluate, including:

Original issuance. QSBS analysis commonly focuses on stock acquired at original issuance from the corporation (as opposed to secondary purchases), subject to statutory rules and exceptions that counsel must interpret. Valuation support is frequently timed to issuance or contribution events.

Holding period context. The statute’s holding period requirements are a tax-law issue. From a valuation perspective, the practical implication is that documentation created at issuance or conversion may be reviewed years later — which is why contemporaneous, well-supported workpapers matter.

Corporate and gross-assets themes. Eligibility frameworks involve corporate characteristics and asset tests that are determined by counsel and tax advisors. Valuation may inform FMV of contributed property or enterprise value at relevant dates, but eligibility conclusions remain with the tax team.

Per-issuer limitations and planning structures. Tax advisors address statutory gain-exclusion limitations and related planning. Valuation’s role remains documenting supportable FMV where those analyses need it.

Successive issuances. Later financing rounds do not erase the need for clear documentation of earlier issuance values when those earlier dates remain relevant to the file.

Multi-class equity, conversions, and reorganizations

Closely held companies rarely have simple cap tables. Preferred stock, options, profits interests converting into stock, and waterfall preferences can all affect how value is allocated among classes on a given date. QSBS-related valuations often require:

• Multi-class equity analysis allocating enterprise value among classes based on rights and preferences
• Conversion valuations — supporting FMV when an entity changes form or equity is exchanged in a conversion
• Reorganization / restructuring valuations — documenting values when counsel is analyzing how a reorg interacts with QSBS facts
• Multi-date valuations — separate conclusions when planning requires more than one valuation date

We coordinate closely with counsel so the valuation answers the question the legal and tax analysis actually poses — not a generic enterprise-value template.

Coordination with counsel and tax advisors

The strongest QSBS files are built as a team. Typical coordination includes:

• Confirming valuation dates that match contemplated contribution, conversion, or issuance steps
• Identifying which equity classes and instruments must be valued
• Aligning report format with what counsel wants in the planning or compliance file
• Flagging fact patterns that may require additional valuation dates or allocation work
• Preserving independence while remaining responsive to advisor timelines

Arch Canyon’s role is valuation. Legal eligibility, tax return positions, and structuring recommendations remain with counsel and CPAs.

What we do

Our QSBS valuation services include:

• Valuations in connection with Section 1202 planning and stock issuances
• Original-issue and conversion valuations for QSBS eligibility support
• Valuations for reorganizations and restructurings involving potential QSBS stock
• Multi-date and multi-class equity valuations where successive rounds affect QSBS analysis
• Support for counsel and tax advisors documenting basis, FMV, and related valuation conclusions
• Calculation and appraisal-level analyses tailored to the engagement’s purpose and audience

Process / what to expect

1. Align with counsel and tax advisors. We start by understanding the contemplated steps, valuation dates, and stock classes — and what the appraisal will be used to support.

2. Gather corporate and financial information. Cap tables, governing documents, financial statements, contribution detail, and term sheets typically drive the analysis.

3. Build the valuation. We apply methods suited to the company’s stage and facts, including allocation among equity classes when required.

4. Document for a future reader. QSBS files are often revisited years later. Clarity and supportability are design requirements, not extras.

5. Deliver and discuss. We provide a report and walk through conclusions with the advisor team.

Why experience matters

QSBS is nuanced. Small facts — when stock was issued, whether it was acquired at original issuance, how prior transfers were structured — can change the legal and tax analysis. Because we have been performing these valuations for nearly a decade, we know where the hard valuation questions arise and how to address them with clear methodology and documentation, not generic templates.

Our highly credentialed experts provide well reasoned, supportable, and defensible opinions.

Contact: 818.449.6300 | info@archcanyon.com | Agoura Hills, CA