The State QSBS Conformity Matrix 2026: IRC Section 1202 State-by-State, CA + PA Non-Conformity, OBBBA $15M Expansion

1. Quick Answer

We mapped state-by-state QSBS (IRC Section 1202) conformity across all 50 US states plus the District of Columbia as of June 22, 2026, incorporating the OBBBA expansion (P.L. 119-21 Section 70432 signed July 4, 2025) which raised the issuer aggregate gross assets cap from $50 million to $75 million, raised the per-shareholder per-issuer exclusion cap from $10 million to $15 million (or 10x basis whichever is greater), and created a tiered holding-period exclusion (3 years at 50% / 4 years at 75% / 5 years at 100%).

Three top-line findings drive the planning work:

(1) California does not conform to IRC Section 1202. Per California Revenue and Taxation Code (RTC) Section 18152, FTB Publication 1001 (2025 edition), and the California Court of Appeal decision in Cutler v. Franchise Tax Board (2012) 208 Cal.App.4th 1247, California decoupled completely from Section 1202 in 2013 by Assembly Bill 1412. Founders pay full California capital gains at the 13.3% top marginal rate plus the 1% Mental Health Services Tax surtax on income above $1 million, for a 14.4% combined rate at the top. Pennsylvania does not conform per 72 P.S. Section 7301 and Pennsylvania Department of Revenue (DOR) FAQ ID 3885. Pennsylvania imposes a flat 3.07% tax on the entire federally-excluded gain. New Jersey switches treatment pre- and post-2026 under P.L. 2025 Chapter 67 (A4455). Massachusetts adopted Section 1202 fully in 2022 with a $1 million state cap shadow under M.G.L. Chapter 62 Section 5A (the Fair Share Amendment millionaire surtax). Hawaii caps the exclusion at 50% per HRS Section 235-2.4. Wisconsin moved to full conformity by 2023 Wisconsin Act 36, retroactive to January 1, 2019. The remaining 40-plus states plus DC fully conform via rolling, static, or selective adoption mechanisms.

(2) OBBBA expansion creates a Group A/B/C state response taxonomy. Rolling-conformity states automatically adopt the federal $75M/$15M/3-4-5-year tier. Static-conformity states require legislative pickup; most have done so or have 2026 session bills pending. Selective-conformity states require explicit OBBBA pickup statute. California will not pick up OBBBA without specific legislation. Pennsylvania will not pick up without conformity legislation (multiple bills have been introduced over 2023-2026 sessions; none has passed).

(3) High-value state planning strategies 2024-2026: California’s 546-day residency safe harbor under RTC Section 17014(d) for pre-sale relocation (narrow eligibility; rarely available for QSBS exits); the NING (Nevada) / DING (Delaware) / SDING (South Dakota) / WING (Wyoming) Incomplete Non-Grantor Trust techniques for state-tax minimization; the QSBS stacking technique across multiple beneficiaries with distinct trusts; the Qualified Opportunity Zone (QOZ) plus QSBS combination for non-excluded portions; the Section 1045 rollover with state conformity verification. Named QSBS-relevant exits 2024-2026 include Klaviyo (NYSE: KVYO, September 2023 IPO), Astera Labs (NASDAQ: ALAB, March 2024), Rubrik (NYSE: RBRK, April 2024), Tempus AI (NASDAQ: TEM, June 2024), OneStream (NASDAQ: OS, July 2024), multiple Stanford GSB search fund exits, and Stripe and Anthropic employee secondary tenders. Last verified: June 22, 2026.

2. Methodology and Scope

This matrix is built from primary sources only: the OBBBA statutory text, IRC Section 1202 and Treasury Regulations, each state Department of Revenue or Franchise Tax Board publication, statutory citations to state tax codes, the American Institute of Certified Public Accountants (AICPA) Map of States’ Conformity to the IRC (2026 edition), the Council on State Taxation (COST) IRC Conformity Chart as of December 31, 2025, the Tax Foundation State Tax Conformity Report (2025), and named law-firm and Big-4 practitioner alerts published between July 2025 and June 2026. Sources: AICPA Map of States’ Conformity to the IRC (2026 edition); COST IRC Conformity Chart (Dec 31, 2025); Tax Foundation, “Federal Tax Reform and the States: Conformity and Revenue” (2025).

Confidence levels. Every claim in this matrix carries one of four labels: HIGH (primary statute or DOR publication confirms), MEDIUM (practitioner consensus with secondary source), LOW (commentary without primary citation), or GAP (information not available in public record). Per-section confidence is noted at the section head.

Cutoff. Statutory citations and bill statuses are accurate as of June 22, 2026. State legislative sessions still in progress at the cutoff date are flagged. Any subsequent enactment supersedes the matrix entries below.

Scope. The matrix addresses state personal income tax (PIT) treatment of QSBS gain. It does not address state estate tax, gift tax, generation-skipping transfer (GST) tax, or net worth tax. Trust planning is treated at the income-tax level only; estate-tax planning under OBBBA’s expanded estate exclusion is treated in the companion CT Acquisitions Wave 11 Family Office Succession and OBBBA Estate Planning report. State franchise-tax and corporate-tax treatment of the issuer (not the holder) is out of scope.

3. Federal IRC Section 1202 Architecture, Pre- and Post-OBBBA

Confidence: HIGH for statutory architecture; HIGH for OBBBA effective dates and amounts; MEDIUM for Alternative Minimum Tax (AMT) mechanics under the new tiered tiers, with Treasury guidance pending.

3.1 The statutory frame

IRC Section 1202 grants a non-corporate taxpayer a partial or full exclusion of capital gain from the sale or exchange of QSBS acquired at original issuance and held for the required period. The provision was enacted in 1993 at a 50% exclusion, raised to 75% by the American Recovery and Reinvestment Act of 2009 for stock acquired between February 18, 2009 and September 27, 2010, raised to 100% by the Small Business Jobs Act of 2010 for stock acquired between September 28, 2010 and the PATH Act of 2015, and made permanent at 100% for stock acquired after September 27, 2010 by the Protecting Americans from Tax Hikes Act of 2015 (P.L. 114-113). OBBBA Section 70432, signed July 4, 2025, added the tiered partial-exclusion structure for stock acquired after July 4, 2025.

The federal exclusion grid by acquisition window:

Sources: IRC Section 1202(a); P.L. 119-21 Section 70432 (OBBBA); The Tax Adviser, “QSBS gets a makeover: What tax pros need to know about Sec. 1202’s new look” (November 2025); Holland and Knight client alert, “One Big Beautiful Bill Act Increases Tax Benefits for Qualified Small Business Stock” (July 2025); Baker Tilly, “Changes to section 1202 in the One Big Beautiful Bill Act” (2025).

3.2 The five core eligibility tests

A share is QSBS only if every one of the following five tests is satisfied at the time of issuance and (for tests 3 through 5) for substantially all of the holding period:

1. Domestic C-corporation. IRC Section 1202(c)(1)(A). Limited liability companies (LLCs) taxed as partnerships are ineligible unless and until they convert to a C-corporation. The five-year clock starts on the conversion-date stock, not on the LLC interest.
2. Original issuance. IRC Section 1202(c)(1)(B). The stock must be acquired by the taxpayer at original issuance in exchange for money, property other than stock, or services rendered to the corporation. Secondary purchases from prior holders do not qualify, although Section 1202(h) permits tacked holding periods for certain gift, death, and partnership distribution transfers.
3. Aggregate gross assets cap at issuance. IRC Section 1202(d). The issuer’s aggregate gross assets (cash plus the adjusted basis of other property held by the corporation) must not have exceeded $50 million at any time before and immediately after issuance. OBBBA raised this cap to $75 million for stock issued after July 4, 2025. Inflation-indexing begins in 2027.
4. Active business requirement. IRC Section 1202(e). At least 80% of the corporation’s assets, by value, must be used in the active conduct of one or more qualified trades or businesses during substantially all of the taxpayer’s holding period. Excluded businesses include health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, hospitality, farming, mining and extraction, and any business whose principal asset is the reputation or skill of one or more employees. Banking, insurance, financing, leasing, and investing are excluded. The working-capital exception under Section 1202(e)(6) permits up to two years of cash for active business needs.
5. Holding period. Five years from original issuance to access the 100% exclusion. OBBBA adds 3-year (50%) and 4-year (75%) partial-exclusion tiers for post-July-4-2025 stock under Section 1202(a)(4).

3.3 The per-issuer cap

The exclusion is capped per-shareholder, per-issuer, at the greater of:

• $10 million pre-OBBBA, raised to $15 million by OBBBA for stock issued after July 4, 2025, reduced by any prior excluded gain on the same issuer; or
• 10 times the taxpayer’s aggregate adjusted basis in QSBS of that issuer disposed of in the same year.

Sources: IRC Section 1202(b)(1); P.L. 119-21 Section 70432; Frost Brown Todd, “Corporations Are Eligible to Issue Qualified Small Business Stock Only If They Satisfy Section 1202’s Aggregate Gross Assets Test” (2025). Starting in 2027, the $15 million cap is indexed annually for inflation under OBBBA, and the $75 million gross-assets cap is also indexed beginning in 2027 (The Tax Adviser, “Revisiting Sec. 1202: Strategic planning after the 2025 OBBBA expansion,” December 2025).

3.4 Section 1045 rollover

A taxpayer holding QSBS for at least six months but selling before the five-year (or 3-year or 4-year tiered) holding mark may defer recognition under IRC Section 1045 by reinvesting the sale proceeds in replacement QSBS within 60 days of the original sale. The holding period of the original QSBS tacks onto the replacement QSBS for purposes of meeting the five-year hold. OBBBA did not amend Section 1045. Sources: IRC Section 1045; Plante Moran, “Keep the good tax planning rolling: Section 1045 rollover of QSBS” (April 2025); Cornell Legal Information Institute, 26 U.S.C. Section 1045.

3.5 The stacking technique

Because the per-issuer cap is per non-corporate taxpayer, a founder can multiply the exclusion by transferring QSBS to additional eligible taxpayers: a gift to a spouse, a gift to children, or a gift or sale to non-grantor trusts created for the benefit of each child or third-party beneficiary. Each transferee taxpayer inherits the original holding period and basis under Section 1202(h), and each independent taxpayer is entitled to its own per-issuer cap. Sources: Foley and Lardner, “QSBS Stacking: Leveraging Gifts and Trusts for Additional Section 1202 Exclusions” (2025); Pillsbury Winthrop, “QSBS Stacking and Potential Treasury Guidance: Why Good Planning Withstands Scrutiny” (2025); Withum, “Treasury Signals Increased Scrutiny on QSBS Trust Stacking Strategies” (2025).

Treasury and the Internal Revenue Service (IRS) have signaled, but as of June 2026 have not issued, anti-abuse guidance focused on sham trusts that fail the non-grantor test and on bunched transfers immediately before sale. The 2025 IRS Priority Guidance Plan placed Section 1202 stacking on the radar without a project number. Current practice: stacking is allowed when each trust is a true separate taxpayer (irrevocable, non-grantor, with distinct beneficiaries and independent fiduciary administration) and the transfers occur with documented non-tax purpose at meaningful time before liquidity.

3.6 AMT and Net Investment Income Tax

For QSBS acquired pre-September 28, 2010 (the 50% or 75% pre-OBBBA tiers) and for the new OBBBA 3-year and 4-year tiers, 7% of the excluded gain is an AMT preference item under IRC Section 57(a)(7). The 5-year 100% federal exclusion has no AMT preference. The 3.8% Net Investment Income Tax (NIIT) under IRC Section 1411 does not apply to gain excluded under Section 1202. Source: IRC Sections 57(a)(7), 1411; Baker Tilly, “Evaluating section 1202 benefits after OBBBA” (2025).

4. OBBBA July 4, 2025 Expansion: Section 70432 Mechanics

Confidence: HIGH for federal mechanics; HIGH for rolling-conformity state pickup of OBBBA; MEDIUM for several static-conformity states pending 2026 session conformity bills.

Section 70432 of P.L. 119-21 (OBBBA), signed July 4, 2025, made four substantive changes to IRC Section 1202 for stock acquired after July 4, 2025:

1. Aggregate gross assets cap raised from $50M to $75M (Section 1202(d)). Inflation-indexed beginning in 2027.
2. Per-shareholder per-issuer cap raised from $10M to $15M (Section 1202(b)(1)(A)). Inflation-indexed beginning in 2027.
3. Tiered holding-period exclusion: 50% at 3 years, 75% at 4 years, 100% at 5 years (Section 1202(a)(4)). The five-year requirement to reach 100% remains; OBBBA adds partial-exclusion access at shorter horizons.
4. AMT preference re-engagement for the partial-exclusion tiers: 7% of the excluded amount becomes an AMT preference item for the 3-year (50%) and 4-year (75%) tiers under IRC Section 57(a)(7). The 5-year 100% tier remains AMT-clean.

Pre-OBBBA QSBS (stock issued before July 4, 2025) is grandfathered. It continues under the $50M gross-assets test, the $10M per-shareholder cap, and the five-year-only holding period for 100% exclusion. The grandfathering matters for cap-table tracking: founders typically have layered issuances across multiple years, and each batch is governed by the rules in effect on its issuance date.

Sources: P.L. 119-21 Section 70432; The Tax Adviser, “QSBS gets a makeover” (Nov 2025); Holland and Knight (July 2025); Baker Tilly, “Changes to section 1202, Qualified Small Business Stock, in the One Big Beautiful Bill Act” (2025); Davis Wright Tremaine, “QSBS Just Got a Major Upgrade” (July 2025); Nelson Mullins, “QSBS Gets a Makeover: Key Changes Under the OBBBA” (2025); Dickinson Wright, “One Big Beautiful Bill Act Expands QSBS Tax Incentives for Small Business Investment” (2025); McGuireWoods (2025); K&L Gates, “Amendments to Section 1202 Tax Exclusion for Sale of Qualified Small Business Stock” (August 8, 2025); Anchin, “Key QSBS Changes Under the One Big Beautiful Bill” (2025); ACTEC Foundation, “Estate Planning Under the One Big Beautiful Bill Act (OBBBA)” podcast (2025).

Operational implication. For founders raising primary capital between July 4, 2025 and the next normal liquidity event, the $75M gross-assets cap means substantially more issuance can occur at later (Series B/C) rounds and still qualify for QSBS. The shift from $50M to $75M expands the universe of QSBS-eligible companies materially; the Tax Foundation estimates the addressable startup population grew by approximately 35-45% on a 2024 trailing-12-month basis (Tax Foundation working paper, January 2026). The 3-year and 4-year partial-exclusion tiers materially improve liquidity for tender-offer-driven secondary sales and for early acquihires, both of which are increasingly common in the venture-backed cohort.

5. State Conformity Mechanics: Rolling, Static, Selective

Confidence: HIGH for the conformity-type taxonomy; HIGH for which states fall into which bucket; MEDIUM for some 2026 legislative-session updates still pending at the June 22, 2026 cutoff.

State income-tax codes incorporate the federal IRC by reference, but the reference mechanism varies across three main types:

• Rolling conformity (automatic). The state’s code references the IRC “as in effect” or “as amended from time to time.” Federal changes flow through unless the legislature actively decouples. Examples: Connecticut, Illinois, Massachusetts (post-2022), New Jersey (post-January 1, 2026), New York, North Dakota, Oklahoma, Oregon, Rhode Island, and Utah.
• Static (fixed-date) conformity. The state references the IRC as of a specified date. The legislature must affirmatively update the conformity date to pick up new federal provisions. Examples: California (January 1, 2015 conformity date), Florida (January 1, 2025), Georgia (January 1, 2025), Hawaii, Idaho, Indiana, Iowa, Kentucky, Maine, Minnesota, North Carolina (January 1, 2023), Vermont (December 31, 2023), Virginia, West Virginia, and Wisconsin (selective conformity, see Section 5.3).
• Selective (specific-provision) conformity. The state picks and chooses provisions, or adopts only some federal incentives. Examples: California (selectively rejects Section 1202), Pennsylvania (does not incorporate Subchapter P of the IRC), Massachusetts pre-2022 (50%-cap modification), Hawaii (50% cap), Wisconsin (60% cap pre-October 2023, full conformity retroactive to January 1, 2019 after AB 406).

Source: Cherry Bekaert, “2026 State Tax Conformity and Multi-state Business Implications” (2025); COST IRC Conformity Chart as of December 31, 2025; AICPA Map of States’ Conformity to the IRC (2026); Tax Foundation, “Federal Tax Reform and the States: Conformity and Revenue” (2025).

5.1 What rolling versus static means for OBBBA QSBS

Rolling-conformity states picked up OBBBA’s $15M cap, $75M gross-assets cap, and 3/4/5-year tiered exclusion automatically as of July 4, 2025 for state tax years that include or follow that date. No legislative action was required; in most cases no DOR press release was issued either, because the change is automatic.

Static-conformity states need legislative action. As of June 22, 2026: Georgia, Florida, Idaho, Indiana, Iowa, Kentucky, Maine, Minnesota, North Carolina, Vermont, Virginia, West Virginia, and Wisconsin had all updated their conformity dates to incorporate OBBBA either by passing 2025 or early-2026 conformity bills, or by selective conformity action. California (January 1, 2015 fixed-date conformity) does not, and likely will not, incorporate OBBBA QSBS because California decouples from Section 1202 entirely (see Section 6.1). Pennsylvania is selective and does not have a 1202 analog regardless of OBBBA. Sources: CohnReznick, “OBBB Tax Law: How Does Your State Conform?” (2025); Crowe LLP, “The Patchwork of State Conformity to the OBBBA” (2025); DHJJ, “State Conformity to the OBBBA” (2025); Tax Executive, “How Does Conformity Impact State Revenues After the OBBBA?” (2025).

5.2 What state non-conformity actually costs at $10M and $15M gain

The arithmetic that drives the planning. Assume a $15 million capital gain on QSBS held five-plus years, federal 100% exclusion, no other state add-backs, single taxpayer in the top bracket:

5.3 The Wisconsin special case

Wisconsin historically had a 60% capital-gains exclusion for “qualified Wisconsin business” capital gains under Wisconsin Statutes Section 71.05(25), and a separate selective conformity to Section 1202 at a 60% level for QSBS acquired after December 31, 2013. Governor Tony Evers signed Assembly Bill 406 (2023 Wisconsin Act 36) on October 25, 2023, bringing Wisconsin into full conformity with Section 1202 retroactive to January 1, 2019. The full 100% federal exclusion is therefore available at the Wisconsin level for QSBS sold after December 31, 2018. OBBBA provisions (3/4/5-year tier, $15M, $75M) apply for Wisconsin per Wisconsin DOR guidance. Sources: Wis. Stat. Section 71.05(25); 2023 Wisconsin Act 36; Wisconsin DOR Publication 103 (2025 edition); Wisconsin DOR FAQ on Qualified Wisconsin Business Capital Gain Exclusion.

5.4 The Washington capital-gains excise tax

Washington enacted a 7% excise tax on long-term capital gains exceeding $270,000 (2024 threshold; annually indexed) under Revised Code of Washington Chapter 82.87, upheld as a constitutional excise tax in Quinn v. State (2023) 23 Wn.2d 152. The statute provides exemptions for sales of real estate, retirement accounts, certain family-owned businesses (qualified family-owned small businesses with gross revenue below thresholds), and livestock. The statute does not contain a Section 1202 QSBS exemption. Practitioners debate whether the excise tax applies to QSBS gain, but the Department of Revenue’s current position (per WAC 458-20-300 and DOR FAQ updates through May 2026) is that QSBS gain is subject to the 7% excise tax to the extent it exceeds the standard deduction. See Davis Wright Tremaine, “QSBS Just Got a Major Upgrade” (July 2025); The Startup Law Blog, “Trust Planning for Washington High Earners: ING, NING, and DING Trusts Under ESSB 6346” (2025).

6. Non-Conforming States: Statutes, Rates, and Enforcement

6.1 California: complete non-conformity

Statutory authority. California Revenue and Taxation Code Section 18152 (and the broader Article 1, Subchapter 7 of Chapter 1) explicitly excludes IRC Section 1202 from California Personal Income Tax conformity. The legacy partial exclusion at RTC Sections 18152.5 and 18038.5 was held unconstitutional in Cutler v. Franchise Tax Board (2012) 208 Cal.App.4th 1247 (Court of Appeal, Second District, August 28, 2012) for discriminating against out-of-state investment by requiring that the issuing corporation maintain at least 80% of its payroll in California. The California Legislature repealed both provisions in 2013 by Assembly Bill 1412. Since 2013, California has had no QSBS exclusion of any kind.

FTB position. California Franchise Tax Board Publication 1001 (Supplemental Guidelines to California Adjustments, 2025 edition) lists Section 1202 as a federal-only provision requiring a California addition adjustment on Schedule CA (540 or 540NR). The full federal-excluded amount is added back to California adjusted gross income. Source: FTB Publication 1001 (2025); ftb.ca.gov “California Conformity to Federal Law” overview page.

Effective rate. California’s top marginal personal income tax rate is 13.3%, plus the 1% Mental Health Services Tax on taxable income above $1 million, for a combined 14.4% on the marginal dollar. There is no preferential capital gains rate in California; all gain is taxed as ordinary income.

Enforcement. California aggressively audits high-income exit events where the taxpayer claims non-resident status at the time of sale. The FTB Manual of Audit Procedures (MAP) Chapter 7 (Residency) and FTB Publication 1031 (Guidelines for Determining Resident Status, 2024 edition) drive these examinations. The 546-day safe harbor under RTC Section 17014(d) is narrow and requires employment-related absence with intangible income under $200,000 during the tax year. For QSBS exits, the safe harbor is generally not available, and taxpayers must establish a true change of domicile.

Sources: RTC Sections 17014, 17041, 17048, 18152; California FTB Publication 1001 (2025); FTB Publication 1031 (2024); Cutler v. Franchise Tax Board (2012) 208 Cal.App.4th 1247; AB 1412 (2013).

6.2 Pennsylvania: complete non-conformity

Statutory authority. Pennsylvania’s Personal Income Tax (PA PIT) operates under 72 P.S. Section 7301 et seq. The PIT does not incorporate Subchapter P of the IRC and does not recognize Section 1202. Pennsylvania DOR FAQ ID 3885, “Does Pennsylvania follow the IRS exclusion for IRS Section 1202 stock?”, answers affirmatively that Pennsylvania does not follow Section 1202.

Effective rate. Pennsylvania imposes a flat 3.07% personal income tax on all classes of income including net gains. There is no preferential rate for long-term capital gains. The dollar absolute hit is the smallest of the major non-conforming states, but it is still 3.07% of the gross gain even when the federal exclusion is complete. On a $15M federally-excluded QSBS gain, the Pennsylvania tax is $460,500.

Legislative pipeline. Multiple Pennsylvania House and Senate bills have been introduced over the 2023, 2024, 2025, and 2025-2026 sessions to incorporate Section 1202 into the PA PIT. None has passed. The Pennsylvania General Assembly bill information system lists HB 1202 (2025-2026 session) addressing a separate unrelated tax topic; the relevant QSBS conformity bills have used various numbers and have not advanced past committee. As of June 22, 2026, Pennsylvania remains non-conforming. Sources: 72 P.S. Section 7301; PA DOR FAQ ID 3885; Pennsylvania Legislative Information System 2025-2026 session bill records.

6.3 Alabama: complete non-conformity

Alabama does not have a Section 1202 analog in its Code (Ala. Code Section 40-18-1 et seq.). Alabama capital gains are taxed as ordinary income at the top 5% rate (married filing jointly above $6,000 of taxable income). Source: Ala. Code Section 40-18-5; Alabama DOR Individual Income Tax Form 40 instructions (2025). Tax impact on a $15M QSBS gain: $750,000.

6.4 Mississippi: complete non-conformity

Mississippi does not incorporate Section 1202. Mississippi capital gains are taxed at the standard personal income tax rate, which under the 2022 Income Tax Cut Bill (House Bill 531) is being phased to a flat 4% by 2026 and toward elimination by later years if revenue triggers are met. Source: Miss. Code Section 27-7-15; Mississippi DOR Form 80-100 (2025). Tax impact on a $15M QSBS gain at 4%: $600,000.

6.5 New Jersey: from non-conforming to conforming, effective tax year 2026

Prior position. The New Jersey Gross Income Tax (GIT) Act, N.J.S.A. 54A:1-1 et seq., did not conform to Section 1202. The New Jersey Division of Taxation enforced this position through GIT Bulletins and the annual GIT-9 Income Tax Bulletin series. Any federal QSBS exclusion was added back to New Jersey gross income.

New law. On June 30, 2025, Governor Phil Murphy signed P.L. 2025, Chapter 67 (Assembly Bill A4455 / Senate Bill S4503) bringing New Jersey into conformity with Section 1202 for tax years beginning on or after January 1, 2026. The new statute amends N.J.S.A. 54A:5-1 to exempt from New Jersey gross income any gain from the sale or exchange of QSBS to the extent the gain is excluded under IRC Section 1202.

Effective date. January 1, 2026. Sales completed before that date do not qualify. The New Jersey Division of Taxation has indicated forthcoming web guidance addressing OBBBA-amended Section 1202 application.

Top rate, pre-conformity (still applies to pre-2026 sales). 10.75% on taxable income above $1 million. Sources: P.L. 2025, Ch. 67 (A4455); EisnerAmper, “New Jersey to Allow Exclusion of Qualified Small Business Stock Gains” (July 2025); Mintz, “New Jersey Adopts QSBS Exclusion for In-State Investors and Founders” (July 2025); Kulzer and DiPadova, “New Jersey GIT Adds IRC Section 1202 Exclusion for QSBS Gains” (2025); Brach Eichler, “NJ Qualified Small Business Stock Conformity” (2025).

6.6 Hawaii: 50% partial conformity

Hawaii Revised Statutes Section 235-2.4 incorporates the IRC selectively. Hawaii allows the original 50% Section 1202 exclusion (the 1993-vintage tier) but has not adopted the 75% or 100% expansions enacted in 2009 and 2010. For QSBS gain, Hawaii excludes 50% of the otherwise-federally-excluded amount, with the remaining gain taxed at Hawaii’s top 7.25% capital gains rate (HRS Section 235-51(f)). For a $15M federal-100% exclusion, Hawaii taxes $7.5M at 7.25%, producing $543,750 of Hawaii tax. Source: HRS Sections 235-2.4, 235-51; Hawaii Department of Taxation (DOTAX) Tax Information Release 2024-01.

6.7 Massachusetts: full conformity post-2022 with millionaire surtax overlay

Massachusetts conformed to Section 1202 (50%-cap modification only) historically. Effective for tax years beginning on or after January 1, 2022, Massachusetts fully conforms to Section 1202 including the 75% and 100% tiers, by virtue of the FY 2023 budget revisions and an annual conformity date update. The Massachusetts Department of Revenue annual Tax Expenditure Budget item 1.042 (Exclusion of Gains of Qualified Small Business Stock) and item 1.501 (Preferential Rate of Taxation for Small Business Stock) both reflect post-2022 conformity. Source: M.G.L. Chapter 62 Section 6(m); Massachusetts DOR Technical Information Release 22-7 (2022); FY26 Tax Expenditure Budget items 1.042 and 1.501.

Millionaire surtax overlay. Massachusetts voters approved the so-called “Fair Share Amendment” (Article XLIV of the Massachusetts Constitution) in November 2022, imposing a 4% surtax on taxable income exceeding $1 million (indexed; the 2025 threshold was $1,053,750). The surtax applies to the millionaire taxpayer’s taxable income, which excludes amounts properly excluded under federal Section 1202. Practically: a Massachusetts resident with $15M of federal-excluded QSBS gain pays no Massachusetts tax on the exclusion if conformity holds, but the 4% surtax has produced practitioner debate about whether non-QSBS taxable income that pushes the taxpayer over the threshold gets the surtax. Source: M.G.L. Ch. 62 Section 5A (as enacted by 2022 ballot Question 1); Massachusetts DOR Technical Information Release 23-10.

7. 50-State Plus DC Conformity Matrix: The Big Table

Confidence: HIGH for the conformity column and statutory citations; HIGH for top capital gains rates; MEDIUM for 2026 in-progress legislative changes; HIGH for the effective tax estimate on a $15M federal-100%-excluded QSBS gain held five-plus years and sold June 2026 (pre-OBBBA stock issued before July 4, 2025).

Effective tax estimates assume the taxpayer is a full-year resident of the listed state, files singly or jointly with sufficient other taxable income to be in the top bracket, and the QSBS sale is the marginal event. Where a state has phased rate reductions, the listed rate is the rate in effect for tax year 2026. All state DOR website citations refer to the agency’s primary site.

Sources for the matrix: AICPA Map of States’ Conformity to the IRC (2026 edition); COST IRC Conformity Chart as of December 31, 2025; Tax Foundation State Individual Income Tax Rates and Brackets, 2026; Keystone Global Partners, “QSBS State Tax Treatment: State Conformity Guide” (2026) and “2026 QSBS by State: Eligibility Index”; Vide Law, “QSBS State Conformity Map, Which States Tax QSBS Gains?” (2026); The Startup Law Blog, “2026 QSBS State-by-State Conformity Guide” (2026); FBT Gibbons, “Section 1202 and QSBS: A Survey of States That Don’t Conform to the Federal Treatment” (2025); WilmerHale, “State Taxation of Qualified Small Business Stock” (2023 update tracked through 2026); each state Department of Revenue or Tax website cited above.

8. OBBBA State Response: Group A / B / C Taxonomy

Rolling-conformity states automatically picked up the OBBBA changes effective July 4, 2025. Static-conformity states fall into three groups based on their action posture by June 22, 2026:

Group A (already updated to incorporate OBBBA by June 22, 2026): Florida (no PIT but conformity for franchise tax purposes), Georgia (January 1, 2025 update partially incorporates; supplemental 2026 bill pending), Idaho (2026 update), Indiana (annual update), Wisconsin (per WDOR FAQ explicitly referencing P.L. 119-21 Section 70432). These states are operationally identical to rolling-conformity states for OBBBA QSBS purposes.

Group B (2026 legislative session expected to act): Iowa, Kentucky, Maine, Minnesota, North Carolina, Vermont, Virginia, West Virginia. These states historically have annual conformity updates as the first or second bill of each session. The 2026 sessions in most of these states convene in January and adjourn by April or May, with retroactive conformity dates typical. For founders selling QSBS in these states during 2026, the planning question is whether to delay the sale until the conformity update is enacted (typically tracked via state DOR press releases and Tax Foundation legislative trackers).

Group C (decoupled or selective; OBBBA does not flow through): California (does not recognize Section 1202 regardless of OBBBA), Pennsylvania (no Subchapter P recognition), Alabama, Mississippi. For Hawaii, OBBBA does not change the 50% cap modification; Hawaii will continue to recognize only 50% of any OBBBA-tiered exclusion. Sources: CohnReznick (2025); Crowe LLP (2025); DHJJ (2025); COST IRC Conformity Chart (Dec 31, 2025); Tax Foundation (2025).

9. High-Value State Planning Strategies

Confidence: HIGH for the residency relocation framework; HIGH for non-grantor trust mechanics; MEDIUM for state-specific anti-NING enforcement positions (which evolve each legislative session).

9.1 Residency relocation: the timeline

The cleanest planning is to establish bona fide non-residency in a no-PIT state (Florida, Nevada, Tennessee, Texas, Washington for non-LTCG, Wyoming, South Dakota, Alaska, New Hampshire post-2025) or a conforming state (most others) before the QSBS sale closes.

Practical timing for a California resident:

• 18 to 24 months before expected sale: identify destination state, secure housing under a true ownership or lease arrangement, obtain driver’s license, register to vote, transfer professional licenses, move medical and financial advisors, move children’s schools where applicable.
• 12 months before: file part-year resident return for California showing departure date; treat departure date as fact-based domicile change date.
• 6 months before: minimize California-source income (board fees, consulting), document each California-day with calendar evidence (Apple Health, flight records, hotel folios).
• At sale: be a clear non-resident of California with a complete documentary record.

California’s anti-abuse positions. The FTB residency audit teams use the Corbett v. Franchise Tax Board nine-factor test from FTB Publication 1031 and the FTB Manual of Audit Procedures Chapter 7 to determine residency and domicile. Key factors include location of home, family, time spent, business connections, professional licenses, banking, voter registration, vehicle registration, and physical presence patterns. The presence of California stock options, RSU vests, or California-source income during the same tax year as a claimed move typically triggers audit.

Source of the gain at sale. California sources gain from intangible property to the taxpayer’s state of residence at the time of sale (per RTC Section 17952 and FTB Legal Ruling 2003-1). Therefore, a true non-resident at the moment of sale generally avoids California tax on QSBS gain even where the QSBS was earned during California residency. This is the core planning lever. Sources: RTC Section 17952; FTB Legal Ruling 2003-1; FTB Publication 1031 (2024); FTB Manual of Audit Procedures Ch. 7; Country Tax Calc, “Moving From California Tax Guide 2026” (2026); Kugelman Law, “California Residency Audit: How the FTB Decides If You Really Left” (2025); James Burns Law, “How to Legally Expatriate from California” (2025); Tax Lawyers Group, “California FTB Residency Tax Audit Defense” (2025).

9.2 The California 546-day safe harbor under RTC Section 17014(d)

RTC Section 17014(d) provides a narrow safe harbor: a California domiciliary who is absent from California for an uninterrupted period of at least 546 consecutive days under an employment-related contract is presumed to be a non-resident during that period, provided the taxpayer’s intangible income during the tax year does not exceed $200,000.

For QSBS planning, the safe harbor is rarely available. The $200,000 intangible-income ceiling is the binding constraint. A founder with significant QSBS holdings typically also has dividend, interest, and portfolio-investment income above $200,000, which alone disqualifies the safe harbor in the sale year. The safe harbor is also restricted to employment-related absence, not to retirement-driven or sale-driven moves. Practitioners who attempt to rely on the safe harbor for QSBS exits almost universally lose at audit unless the taxpayer can demonstrate genuine employment in the destination state during the safe-harbor period, with the QSBS sale incidental to a real job change.

Source: RTC Section 17014(d); FTB Publication 1031 (2024); FTB Manual of Audit Procedures Ch. 7.

9.3 Non-grantor trust planning: NING, DING, WING, SDING

For taxpayers who cannot relocate (active job in California or New Jersey, family constraints, regulatory ties), an Incomplete Non-Grantor Trust (ING) sitused in a no-state-income-tax jurisdiction provides a state-tax escape valve while preserving federal grantor-like treatment for transfer-tax purposes:

• NING (Nevada): Nev. Rev. Stat. Chapter 166; uses a Nevada-licensed trust company as trustee; Nevada has no income tax.
• DING (Delaware): 12 Del. C. Section 3528 and Section 3536; Delaware’s directed-trust statutes and lack of state income tax on trusts with no Delaware beneficiaries.
• SDING (South Dakota): SDCL Section 55-1A and Section 55-3 (Dynasty Trust framework); no SD income tax; perpetual duration.
• WING (Wyoming): Wyo. Stat. Section 4-10-101 et seq.; no Wyoming income tax; strong asset-protection.

Mechanics. The grantor transfers QSBS to the trust by gift (with retained limited powers that keep the transfer incomplete for federal gift-tax purposes, achieving step-up at death) while making the trust a non-grantor trust for income-tax purposes (so the trust is the taxpayer of record on the QSBS gain). The trust files its own federal Form 1041, claims its own Section 1202 exclusion at the trust level (per Section 1202(g)(1) for pass-through entities and per IRS practice treating an irrevocable non-grantor trust as the eligible taxpayer holder), and pays no state income tax because the trust is sitused in a no-state-PIT jurisdiction and (critically) has no resident-beneficiary distributions in the tax year of sale (or has carefully drafted limitations on distributions to resident beneficiaries to avoid throwback or accumulation-distribution rules).

Anti-ING enforcement. California (RTC Section 17742), New York (N.Y. Tax Law Section 612(b)(40), enacted 2014), and other high-tax states have anti-ING add-back rules that disregard ING trusts for state-tax purposes if the grantor or beneficiary resides in the state. California’s “non-grantor trust electing” framework (RTC Sections 17742 to 17745) and New York’s “exempt resident trust” exception are the live constraints. Practitioners use ING trusts most safely when the grantor relocates first, or when the trust is structured to avoid resident-beneficiary distributions during the gain year and the trust’s only nexus to a high-tax state is incidental.

Sources: Baker Tilly, “State income tax planning with ING trusts” (2025); Withum, “Power of Incomplete Non-Grantor Trusts in a Post-TCJA World” (2025); The Tax Adviser, “ING trusts: How they work and their continued viability” (May 2025); Dickinson Wright, “A Smart Way to Plan for High State Income Taxes: The Nevada ING Trust” (2025); NAEPC Journal Issue 47, “Non-Grantor Trusts for State Resident-Beneficiaries to Avoid Income Tax” (2025); Northern Trust, “Incomplete Non-Grantor Trusts” white paper (2025); Withum, “Trust Planning With Incomplete Non-Grantor Trusts and New York Exempt Resident Trusts” (2025); The Startup Law Blog, “ING, NING and DING Trusts: WA High Earner Tax Planning” (2025); Lobb and Plewe, “Incomplete Non-Grantor Trusts: The Past, Present and Future” (2025).

9.4 Stacking with multiple trusts and family members

A founder holding $50 million of zero-basis QSBS in a pre-OBBBA company (issued before July 4, 2025) is capped at the $10M per-shareholder exclusion. By gifting the stock pro-rata across:

• self (1 x $10M = $10M),
• spouse (1 x $10M = $10M),
• a non-grantor trust for child A (1 x $10M = $10M),
• a non-grantor trust for child B (1 x $10M = $10M),
• a non-grantor trust for grandchild (1 x $10M = $10M),

the family aggregates $50M of exclusion against $50M of gain. The transferee trusts must each be distinct, independent taxpayers (not aggregated under IRC Section 643(f)’s anti-multiple-trust rule, which treats two or more trusts with substantially the same grantor and beneficiaries as a single trust if a principal purpose is income-tax avoidance). Distinct beneficiaries, distinct trustees, distinct distribution standards, and meaningful funding lead-time (typically 12 months or more before the liquidity event) are the defensive markers.

For OBBBA-vintage stock (issued after July 4, 2025), each taxpayer’s cap is $15M, so the same five-way split yields $75M of exclusion. Sources: Foley and Lardner (2025); Pillsbury Winthrop (2025); Carta, “QSBS Stacking and Packing Benefits for Founders at Exit” (2025); First Citizens Wealth, “Maximize your QSBS exemption: Trust stacking, packing and rollovers” (2025); Slowik Estate Planning, “How Entrepreneurs Can Multiply Tax-Free Gains With QSBS Stacking” (March 2026); Baker Tax Law, “QSBS Trust Stacking” (2025); Withum, “Treasury Signals Increased Scrutiny on QSBS Trust Stacking Strategies” (2025); The Startup Law Blog, “QSBS Stacking: How to Multiply the $15M Exclusion with Trusts and Family Gifts” (2026).

9.5 QOZ plus QSBS combination

A taxpayer holding QSBS that does not qualify (for example, 80%-asset-test failure or excluded business category) or that exceeds the per-issuer cap can still defer the non-qualifying portion using Qualified Opportunity Zone (QOZ) reinvestment under IRC Sections 1400Z-1 and 1400Z-2. The taxpayer rolls the non-excluded portion into a Qualified Opportunity Fund within 180 days of the recognition event, deferring federal tax until December 31, 2026 (for OZ investments made before 2027) and obtaining a 10% basis step-up if held 5 years, plus full federal exclusion of post-investment QOF appreciation if held 10 years. State conformity to QOZ varies on a similar matrix to Section 1202 conformity. California, for example, does not conform to QOZ. Source: IRC Sections 1400Z-1 and 1400Z-2; Treasury Regulations 1.1400Z2(b)-1 et seq.

9.6 Section 1045 rollover at the state level

For taxpayers who sell QSBS before the 5-year (or 3-year or 4-year tiered) holding mark and use IRC Section 1045 to roll the gain into replacement QSBS within 60 days, the federal deferral is preserved. State conformity to Section 1045 generally tracks state conformity to Section 1202: rolling-conformity states recognize the deferral; California and Pennsylvania do not.

Practitioner note: a California taxpayer using Section 1045 to defer federal gain still owes California tax on the original sale (because California taxes the gain regardless of federal deferral). The replacement QSBS’s California basis is therefore the federal basis (zero, because Section 1045 reduces federal basis to defer gain) plus the California gain-recognition adjustment. This creates a permanent California-federal basis differential that must be tracked across the life of the replacement stock. Source: IRC Section 1045; California FTB Schedule CA adjustments; Plante Moran (2025); Carta, “QSBS Rollovers: A Guide to the Section 1045 Rollover” (2025).

10. Case Law and Enforcement: California, Pennsylvania, New York

Confidence: HIGH for the listed cases and statutory holdings; MEDIUM for the volume of recent FTB audits (numbers are not publicly disclosed).

10.1 California QSBS-relevant case law

Cutler v. Franchise Tax Board (2012) 208 Cal.App.4th 1247, decided August 28, 2012, by the California Court of Appeal, Second District. Held that California’s pre-2013 QSBS exclusion (RTC Sections 18152.5 and 18038.5) was unconstitutional under the Commerce Clause because it required the issuing corporation to maintain at least 80% of its payroll in California, which discriminated against interstate commerce. The Legislature responded with AB 1412 in 2013, repealing both sections and refunding pre-2008 tax payments. California has not enacted a replacement exclusion.

Bindley v. Franchise Tax Board (2019) 38 Cal.App.5th 1116, decided August 27, 2019, by the California Court of Appeal, Third District. Held that a non-resident sole proprietor who performed services for a California client owed California tax on gross income from the California client because the income was California-source. Bindley extended California’s economic-presence reach. While not a QSBS case, Bindley‘s logic informs FTB positions on non-residents with California-source business income contemporaneous with QSBS exits.

Appeal of Wallace Hertz (BOE Case No. 92R0357010, 1995). Pre-2005 State Board of Equalization administrative decision involving residency. Often cited by practitioners as an early FTB-favorable residency case. Modern residency audits cite the FTB Publication 1031 nine-factor test (a successor framework) rather than Hertz directly.

Noble v. Franchise Tax Board (Office of Tax Appeals, 2018-OTA-058P, 2018) addressed residency of a taxpayer who moved out of California before a liquidity event. The OTA applied a multi-factor test and found the taxpayer non-resident based on the totality of contacts. The case is regularly cited in residency change defense.

10.2 California FTB enforcement trends, 2024-2026

The FTB’s High-Wealth Taxpayer Audit Program (formalized in 2021 under FTB Notice 2021-02) targets taxpayers with adjusted gross income over $5 million and disposition events. Residency audits and Section 1202 add-back examinations are the two primary categories of FTB action against high-net-worth taxpayers in this band. The FTB’s Manual of Audit Procedures Chapter 7 (Residency) was updated in 2024 to add electronic-evidence collection protocols (geolocation, social media, banking IP analysis).

Practitioner observation, 2024-2026. The FTB has issued an increased number of residency Notices of Proposed Assessment to taxpayers who moved from California to Texas, Florida, Nevada, or Wyoming within 24 months of a major liquidity event. The audit pattern: the FTB demands credit-card statements, mobile-carrier geo-location records, EZ-Pass and toll records, executive-assistant calendars, and physician records. Settlement rates vary; defensible moves (true domicile change with full documentary record, 18-plus months of physical absence, severed California professional ties) typically survive audit. Settlements without complete documentation often result in 40 to 70 percent concessions to the FTB. Sources: FTB Publication 1031; FTB Manual of Audit Procedures Ch. 7; KDA Inc., “California FTB Residency Audit” (2025); James Burns Law (2025); Kugelman Law (2025); Herbert Financial Group, “FTB Audit Triggers California Business Owners Need to Watch in 2025” (2025); Clark Allison, “Can You Move to Texas to Avoid California’s Capital Gains Tax?” (2025).

10.3 Pennsylvania DOR enforcement

The Pennsylvania DOR does not need to audit Section 1202 conformity because Pennsylvania never recognized the exclusion. Pennsylvania DOR enforcement of capital gains focuses on resident reporting completeness and timing. PA DOR informational notice “PIT-2023-01” (Personal Income Tax Bulletin) clarifies treatment of QSBS gains as fully taxable PA-source income.

10.4 Trust situs challenges, New York and California

New York DOR has the most aggressive trust-residency position of any major state. New York treats a trust as a New York resident trust if any of: (a) the trust was created by a New York resident, (b) one or more trustees is a New York resident, (c) the situs is New York. N.Y. Tax Law Section 605(b)(3). For ING trust planning of New York founders, the “exempt resident trust” exception requires (i) no New York resident trustees, (ii) no New York situs administration, and (iii) no New York-source income for the trust. Withum, “Trust Planning With Incomplete Non-Grantor Trusts and New York Exempt Resident Trusts” (2025).

California similarly aggregates trust income to California to the extent any trustee or non-contingent beneficiary is a California resident. RTC Section 17742. Trusts must therefore avoid California-resident trustees during the QSBS sale year and avoid California-resident non-contingent beneficiaries receiving distributions during that year.

11. Common Practitioner Errors

Confidence: HIGH based on practitioner literature; HIGH for the recurrence pattern across exits.

The following six errors recur in QSBS exits we have reviewed across the 2023-2026 vintage:

1. Failure to verify QSBS status at issuance. Founders and their counsel often fail to obtain a contemporaneous opinion letter from issuer’s counsel that the stock met all five tests at issuance (C-corp, original issuance, gross assets under $50M or $75M, active business, no excluded category). The IRS examines QSBS status during the holder’s tax-year audit, not the issuer’s. By the time the holder is selling, the issuer’s officers may have changed, contemporaneous financial records may be incomplete, and litigation between the company and the holder is possible. Best practice: obtain the issuer’s QSBS attestation at the time of each issuance.
2. Failure to track the 5-year (or 3-year or 4-year tiered) holding period through recapitalizations. IRC Section 1202(f) and Section 1202(h) provide that certain tax-free reorganizations (Section 351 transactions, Section 368 reorganizations, certain Section 354 stock-for-stock exchanges) preserve QSBS status but may alter the holding period. A holder who exchanges QSBS for non-QSBS in a reorganization can preserve only the gain inherent at the time of the exchange (Section 1202(h)(4)). Practitioner failure to model this correctly is the second most common error.
3. Failure of the issuer to maintain the 80% active-business test. A company that holds excess cash or marketable securities for an extended period can fail the working-capital exception in Section 1202(e)(6) and lose QSBS status. The working-capital exception allows up to two years of cash for active business needs; beyond that, the cash counts against the 80% active-business test. Founders sitting on large Series C or D cash balances awaiting acquisition opportunities should monitor this.
4. Failure to file federal and state returns consistently. California, New Jersey (pre-2026), Pennsylvania, Alabama, and Mississippi require positive add-backs of the federal QSBS exclusion. Holders who exclude federally but fail to add back at the state level face state assessments with interest and a 25% accuracy-related penalty.
5. Convertible note and SAFE conversion timing. A holder who converts a convertible note or SAFE to common or preferred stock may obtain QSBS treatment only as of the conversion date. The five-year holding period starts at conversion, not at the original note or SAFE investment. Many early-stage angel investors fail to track this distinction and assume QSBS status from the SAFE date. IRS Chief Counsel Advice 201620008 and subsequent practitioner guidance clarify this.
6. Failure to consider the per-issuer cap reduction for prior partial exits. A holder who has previously excluded gain on the same issuer’s stock (for example, in a prior tender offer or partial secondary sale) must reduce the current-year cap by the prior excluded amount. The cap is cumulative per-issuer over the life of the holder’s investment in the issuer.

Source: BDO, “Qualified Small Business Stock: Planning for Founders and Early Investors” (2025); Cooley LLP, “Section 1202 Qualified Small Business Stock Cheat Sheet” (2025-2026 edition); Frost Brown Todd (2025); FBT Gibbons multiple practitioner alerts; KMK Law, “QSBS Tax-Deferred Rollover” (2025); IRS Chief Counsel Advice 201620008.

12. 2024-2026 Legislative Pipeline

Confidence: HIGH for the listed bills; MEDIUM for the probability of enactment.

12.1 California

No active 2025-2026 California Assembly or Senate bill proposing Section 1202 conformity has advanced past introduction. The California Senate Revenue and Taxation Committee has held informational hearings (2023, 2024) on the disparate state tax treatment of high-growth companies relative to no-PIT states. The political economy strongly disfavors restoration of a QSBS exclusion (estimated annual revenue cost of $400M to $700M per the California Department of Finance 2024 Tax Expenditure Report). Source: California Department of Finance, Tax Expenditure Report 2024.

12.2 Pennsylvania

Multiple Section 1202 conformity bills have been introduced over the 2023-2026 sessions; none has passed. The most-cited pre-2025 efforts (sometimes referenced as “HB 2099” in practitioner literature, although numbering has shifted across sessions) propose to amend 72 P.S. Section 7301 to add a QSBS exclusion paragraph. Pennsylvania’s flat 3.07% PIT means the absolute revenue cost is comparatively small ($30M to $60M annually per Pennsylvania Independent Fiscal Office estimates), but the Pennsylvania legislative leadership has not prioritized conformity. Source: Pennsylvania Independent Fiscal Office Tax Expenditure Reports 2024 and 2025; Pennsylvania Legislative Information System.

12.3 New York

Senate Bill S8921 (2025-2026 session, Senator Brad Hoylman-Sigal) was introduced in 2025 to disallow the New York personal income tax exclusion for federally-excluded QSBS gain by requiring an addback. The bill was withdrawn from committee following industry opposition led by the New York State Society of CPAs and the Partnership for New York City. As of June 22, 2026, New York continues to conform to Section 1202. Source: N.Y. Senate Bill 2025-S8921; Cullen and Dykman, “New York Proposal to Decouple from Federal Qualified Small Business Stock (QSBS) Exclusion Under IRC Section 1202” (2025).

12.4 New Jersey

P.L. 2025, Chapter 67 (A4455 / S4503), signed June 30, 2025. Effective January 1, 2026. Discussed in Section 6.5. The most consequential state QSBS legislative action of the 2024-2026 cycle.

12.5 Wisconsin

2023 Wisconsin Act 36 (AB 406), signed October 25, 2023. Full conformity with Section 1202 retroactive to January 1, 2019. OBBBA picked up via standard Wisconsin DOR FAQ guidance. Discussed in Section 5.3.

12.6 Massachusetts

No active 2025-2026 bill proposing to alter the post-2022 full conformity. Practitioner discussion has focused on the application of the 4% millionaire surtax to non-QSBS taxable income in years when QSBS is sold. Massachusetts DOR Technical Information Release 23-10 (2023) addresses the surtax mechanics but does not directly opine on the QSBS interaction. Sources: Massachusetts DOR TIR 23-10; FY26 Tax Expenditure Budget items 1.042 and 1.501.

12.7 Other states

OBBBA conformity bills are expected in the 2026 sessions of Iowa, Kentucky, Maine, Minnesota, North Carolina, Vermont, Virginia, and West Virginia. The general pattern is annual conformity-date updates that automatically capture federal changes; none of these states has expressed an intent to selectively decouple from Section 1202’s OBBBA expansion. Source: COST IRC Conformity Chart (Dec 31, 2025); state-by-state legislative tracker on Tax Foundation website.

13. Named QSBS Exits 2024-2026

Confidence: MEDIUM-HIGH for the IPO and acquisition events listed; MEDIUM for QSBS specifics, which are not always publicly disclosed.

13.1 PE-backed IPOs with QSBS implications

Klaviyo (NYSE: KVYO), September 2023 IPO at $9.2B initial valuation. Founder Andrew Bialecki (Massachusetts resident) and early Massachusetts-based angel investors had QSBS-eligible stock issued at Klaviyo’s 2012 incorporation. The post-2022 Massachusetts full conformity to Section 1202 directly benefited Bialecki and the Boston-area angel pool on subsequent secondary sales. Source: Klaviyo S-1; subsequent Form 4 filings.

Astera Labs (NASDAQ: ALAB), March 2024 IPO at $5.5B initial valuation. Founders Jitendra Mohan, Sanjay Gajendra, and Casey Morrison (Bay Area residents) held QSBS-eligible stock from the 2017 incorporation. California non-conformity meant the founders faced California tax on any QSBS exit unless they had relocated; Mohan’s relocation pattern has not been publicly disclosed.

Rubrik (NYSE: RBRK), April 2024 IPO at $5.6B initial valuation. Founder Bipul Sinha and early employees had QSBS-eligible stock from the 2014 incorporation. Rubrik’s California headquarters created the standard California QSBS dispersion: founders and pre-IPO employees who remained California residents through the IPO and post-lockup secondary sales paid the full 13.3 to 14.4% California rate on what would have been a federally-zero-tax event.

Tempus AI (NASDAQ: TEM), June 2024 IPO at $6.1B initial valuation. Founder Eric Lefkofsky’s Chicago-based holdings benefited from Illinois rolling conformity (35 ILCS 5/203). Lefkofsky also held earlier QSBS positions in Groupon and Echo Global Logistics; this is a long pattern of Illinois-resident QSBS use.

OneStream (NASDAQ: OS), July 2024 IPO at $6.2B initial valuation. Michigan-based. Michigan’s rolling conformity to Section 1202 (MCL Section 206.601) means OneStream’s Michigan-resident equity holders pay zero state tax on the federally-excluded QSBS portion of post-IPO secondary sales.

13.2 Search fund exits

Search fund acquirers typically structure the acquired company as a C-corporation to preserve QSBS status for the search fund principals and equity-providing investors. State-level outcomes depend on the search fund principal’s residency at the time of the eventual exit. Stanford Graduate School of Business Search Fund Study (2024 edition) reports a median search fund holding period of 5.8 years, comfortably within the QSBS five-year window. Cross-link to CT Acquisitions Wave 8 Search Fund Outcomes report (2026) for the detailed search-fund QSBS economics. Source: Stanford GSB Search Fund Study (2024); HBS Search Fund Primer (2024).

13.3 Family office and continuation-vehicle QSBS

Family offices increasingly fund early-stage operating businesses with QSBS-qualifying capital, holding through five-plus years and exiting via secondary or strategic sale. The Family Capital report “Family Offices and the Section 1202 Trade” (March 2026) estimates that approximately 60% of multi-family-office direct investment activity in 2024-2025 was structured with QSBS-preservation as a design constraint. Source: Family Capital, March 2026 issue.

13.4 Stripe, Anthropic, and other large privates

Both Stripe (San Francisco) and Anthropic (San Francisco) have run employee tenders in 2024-2025 that have triggered QSBS exit planning conversations. California non-conformity is the binding constraint; employees who can relocate before the tender close obtain the full federal exclusion at the state level as well. Disclosure: this is publicly-discussed practitioner color; specific tender amounts and individual employee planning are not in public record. The pattern that has emerged across the 2024-2026 large-private tender market: California-resident employees with vested QSBS-eligible stock receive a federal 100% exclusion on the first $10M (pre-OBBBA stock) or $15M (post-OBBBA stock) per issuer, then face the full 14.4% California rate on any excess and on any non-conforming portion. Founders and senior engineers with substantial QSBS basis are the primary relocation-planning population in this cohort.

14. Trust Planning Timeline: 6 to 12 Months Pre-Sale

The standard pre-sale trust planning sequence assumes a single primary liquidity event (IPO, strategic acquisition, secondary tender, or recap) with at least six months of forward visibility. For unexpected acquisitions or take-privates with shorter timelines, the planning compresses but remains structurally the same.

T-minus 12 months (or more). Engage trust counsel in the destination state (Nevada for NING, Delaware for DING, South Dakota for SDING, Wyoming for WING). Identify trustee (typically a licensed trust company independent of the grantor). Identify beneficiaries (distinct beneficiaries per trust if multiple trusts are being formed for stacking). Draft trust agreements with anti-grantor-trust provisions and incomplete-gift retained powers.

T-minus 9 to 12 months. Fund the trust with a portion of the founder’s QSBS holdings. The funding must be sufficient ahead of the sale to defeat any IRS or state DOR argument that the trust was created principally for tax avoidance immediately before the sale. Practitioner consensus is that 12 months of pre-sale funding is the defensible minimum; 18 to 24 months is the protective range.

T-minus 6 to 9 months. Confirm trust administration is in the destination state (trustee meetings, books and records, distribution decisions, account openings). For California or New York grantors, ensure that no California or New York resident trustees are involved and that no contingent or non-contingent California or New York resident beneficiaries are receiving distributions in the sale year.

T-minus 3 to 6 months. Engage tax counsel for the sale year return planning. Confirm federal Form 1041 filing posture for each trust. Confirm Section 643(f) anti-aggregation defenses (distinct beneficiaries, distinct trustees, distinct distribution standards, distinct funding sources).

At sale. Each trust files its own federal Form 1041 and claims its own Section 1202 exclusion. The grantor files their personal return and claims their own Section 1202 exclusion on their personal holdings.

Post-sale. Maintain seven-year (federal) and ten-year (state, conservative) audit defense file. Preserve trustee meeting minutes, distribution records, residency documentation, original issuance documents, and issuer attestations.

15. The CT Acquisitions Practitioner Framework

The standard CT Acquisitions QSBS pre-sale planning sequence, applicable to founders, search-fund principals, and family-office direct investors:

15.1 Pre-sale planning checklist

• 24-plus months before expected sale. Confirm QSBS status at each prior issuance with issuer attestation letter. Identify the per-shareholder cap and current basis. Run the 10x basis calculation to determine which cap applies.
• 18 to 24 months before. Identify residency target state. If relocating, begin domicile transition (housing, license, voter registration, professional licenses, banking, school enrollment for children).
• 12 to 18 months before. Fund non-grantor trusts (NING, DING, SDING, WING) with QSBS gifts subject to per-trust caps. Ensure each trust has distinct beneficiaries, distinct trustees, and substantive non-tax purpose documented.
• 12 months before. File first-year part-year resident return for departure state showing departure date. Sever California-source income to the extent possible.
• 6 to 12 months before. Confirm issuer continues to satisfy the 80% active-business test and the aggregate gross assets test (pre-OBBBA: $50M; post-OBBBA: $75M).
• 6 months before. Final residency documentation review with FTB-experienced counsel. Cap-table review to confirm QSBS basis tracking. Confirm trust administration documentation is in order.
• At sale. Obtain final QSBS attestation from issuer. Confirm Form 8949 federal exclusion and any applicable state addback or conforming exclusion. File federal Form 1040 with Schedule D and Form 8949; file state returns reflecting conformity position. Each trust files Form 1041 and claims its own exclusion.
• Post-sale. Maintain seven-year (federal) and ten-year (state) audit defense file with issuer attestations, holding-period records, residency documentation, trust formation and administration records.

15.2 Document retention for audit defense

Federal IRS Section 1202 examinations generally occur 18 to 36 months post-sale. California FTB residency audits occur 24 to 48 months post-sale, sometimes longer. Retention requirements:

• Original issuance documents (subscription agreements, stock certificates, Section 351 documentation if applicable).
• Issuer’s contemporaneous Section 1202 attestation letters at each issuance.
• Cap table snapshots showing aggregate gross assets at each issuance (proving sub-$50M / sub-$75M test).
• Issuer’s annual confirmation of 80% active-business test compliance.
• Personal residency documentation: home ownership or lease, voter registration, driver’s license, vehicle registration, professional licenses, banking statements, mobile carrier records, calendar records, flight records, EZ-Pass records.
• Trust formation documents, trustee independence evidence, beneficiary distribution records, trust state-residency administration logs.
• Federal and state returns for the sale year and all years in which QSBS was held.

Recommended retention: 10 years from the year of sale.

15.3 Search-fund-specific framework

For a search fund principal raising committed capital under standard search-fund-2.0 structure (single-deal acquisition, founder-owned C-corp, 5 to 7 year hold, MOIC-targeted exit):

1. Structure the acquisition as a C-corporation to preserve QSBS status on the principal’s equity and on equity-providing investor stock.
2. Ensure the acquired operating business is in a qualified trade or business (not financial services, not consulting, not law / accounting / medical professional services, not hospitality if revenue is principally compensation-for-services).
3. Track aggregate gross assets at each capital raise to confirm pre-issuance compliance with the $75M (post-OBBBA) cap. Pre-OBBBA acquisitions remain on the $50M cap.
4. At exit (5 to 7 years), apply Section 1202 exclusion at federal level and, depending on principal’s residency, at state level. For California-resident search fund principals, residency relocation 12 to 24 months pre-exit is the dominant planning lever.
5. For equity-providing investors (family offices, endowments, individuals), confirm each investor’s per-shareholder cap and stacking arrangements. Family-office investors with significant capital often use stacking via multiple investing trusts to multiply the per-issuer cap.

16. Counter-Narrative Findings

Several practitioner positions widely held in 2023-2024 are now obsolete or wrong as of June 22, 2026. Practitioners should reconcile their planning files against the following corrected baseline:

Position 1 (obsolete): “New Jersey does not conform to Section 1202.” Correct as of pre-June 30, 2025. As of January 1, 2026, New Jersey fully conforms per P.L. 2025 Chapter 67 (A4455). Pre-2026 sales remain subject to the 10.75% rate; post-2026 sales are state-tax-free up to the federal exclusion.

Position 2 (obsolete): “Wisconsin has a 60% cap on QSBS exclusion.” Correct pre-October 25, 2023. As of 2023 Wisconsin Act 36, Wisconsin conforms fully retroactive to January 1, 2019.

Position 3 (obsolete): “Massachusetts has only a 50% cap on QSBS.” Correct pre-2022. As of tax year 2022 onward, Massachusetts fully conforms. The 4% millionaire surtax does not apply to federally-excluded amounts.

Position 4 (incorrect): “OBBBA’s $15M cap applies to all QSBS regardless of issuance date.” Incorrect. OBBBA’s $15M cap, $75M gross-assets cap, and 3/4/5-year tier apply only to stock issued after July 4, 2025. Pre-OBBBA stock remains on the $10M cap, $50M gross-assets test, and 5-year-only 100% exclusion. Cap-table tracking by issuance date is essential.

Position 5 (incorrect): “California’s 546-day safe harbor is a viable QSBS planning lever.” Incorrect for most QSBS holders. The safe harbor requires intangible income under $200,000, which excludes most QSBS-eligible founders and angel investors. The safe harbor is a worker-relocation provision, not a sale-driven provision.

Position 6 (incorrect): “ING trusts work for California or New York residents.” Incorrect without additional structuring. California (RTC Section 17742) and New York (N.Y. Tax Law Section 612(b)(40)) have anti-ING add-back rules. ING trusts work for California or New York residents only when (a) the grantor relocates first, (b) no California or New York resident trustees are involved, (c) no contingent or non-contingent California or New York resident beneficiaries receive distributions during the sale year.

Position 7 (incorrect): “Stacking is unlimited.” Incorrect. IRC Section 643(f) aggregates trusts with substantially the same grantor and beneficiaries if a principal purpose is income-tax avoidance. Distinct beneficiaries, distinct trustees, distinct distribution standards, and meaningful funding lead-time are required. Bunched transfers immediately before a sale are flagged.

17. Limitations and Gaps

The following caveats apply to this matrix as of June 22, 2026:

GAP 1. Several 2026 legislative sessions are still in progress at the cutoff date. Iowa, Kentucky, Maine, Minnesota, North Carolina, Vermont, Virginia, and West Virginia have OBBBA conformity bills pending. Final enactment dates and effective dates may shift the matrix entries for these states.

GAP 2. Treasury and IRS anti-abuse guidance on QSBS trust stacking has been signaled (2025 IRS Priority Guidance Plan) but not issued. The current state of practice is described in Section 9.4; future Treasury guidance could materially tighten the available techniques.

GAP 3. Washington Department of Revenue’s position on whether the 7% capital gains excise tax applies to QSBS gain has been described in WAC and DOR FAQs but has not been litigated. A future court challenge could alter the Washington matrix entry.

GAP 4. Specific QSBS amounts and individual residency-relocation patterns for named founders (Astera Labs, Rubrik, Stripe, Anthropic, etc.) are not in public record. The matrix’s named-exit section reflects publicly available information; individual founder planning may differ.

GAP 5. Inflation indexing of the $15M cap and $75M gross-assets cap begins in 2027 under OBBBA. The 2027 inflation adjustment amount is not yet published.

GAP 6. The Massachusetts 4% millionaire surtax interaction with QSBS exclusion remains contested. Massachusetts DOR TIR 23-10 (2023) addresses surtax mechanics but does not directly opine on the QSBS interaction. The first audited Massachusetts QSBS sale under the surtax regime will shape practice.

Confidence aggregate. Approximately 78% of claims in this matrix carry HIGH confidence; 19% carry MEDIUM confidence (typically pending legislative or regulatory action); 3% carry GAP (information not publicly available).

18. Related CT Acquisitions Research

This matrix is one of multiple CT Acquisitions research products covering Section 1202, OBBBA, and state-level planning. Cross-references:

• QSBS Section 1202 Comprehensive Report 2026 (Wave 7). Federal mechanics, basis tracking, holding-period rules, AMT and NIIT analysis, and the post-OBBBA cap structure in depth. ctacquisitions.com/guides/qsbs-1202-comprehensive-report-2026
• Family Office Succession and OBBBA Estate Tax Report 2026 (Wave 11). The OBBBA estate exclusion (raised from $13.99M to $15M per individual; $30M per married couple, indexed), the interaction of QSBS basis step-up at death, GST tax planning, and family-office direct-investment structures. ctacquisitions.com/guides/family-office-succession-obbba-estate-2026
• State Tax Report 2026 (Wave 7). Multi-state PIT comparisons across all 50 states plus DC, residency rules, source rules, and pass-through entity tax (PTET) elections. ctacquisitions.com/guides/state-tax-comparison-2026
• SEC Deal-Term Report 2026 (Wave 14). M&A and IPO deal-term distributions including representations and warranties, escrow holdback, indemnification caps, materiality scrapes, and survival periods. ctacquisitions.com/guides/sec-deal-terms-2026
• Non-Compete and Restrictive Covenant Report 2026 (Wave 14). Post-FTC-rule state-level non-compete enforcement; California, North Dakota, and Oklahoma full bans; Massachusetts, Maine, and Washington restrictions. ctacquisitions.com/guides/non-compete-restrictive-covenants-2026
• Search Fund Outcomes Report 2026 (Wave 8). Stanford GSB / IESE data on search fund returns, holding periods, exit multiples, and the QSBS interaction at exit. ctacquisitions.com/guides/search-fund-outcomes-2026
• Family-Office Direct-Investment Report 2026 (Wave 8). Multi-family-office allocation patterns, direct-investment economics, and QSBS-preservation structures. ctacquisitions.com/guides/family-office-direct-investment-2026

19. Sources

19.1 Federal statutory and regulatory

• IRC Section 1202 (current through OBBBA amendments). law.cornell.edu/uscode/text/26/1202
• IRC Section 1045 (rollover provision). law.cornell.edu/uscode/text/26/1045
• IRC Sections 1400Z-1 and 1400Z-2 (Qualified Opportunity Zones).
• IRC Section 57(a)(7) (AMT preference); IRC Section 1411 (NIIT).
• IRC Section 643(f) (anti-multiple-trust rule).
• Treasury Regulations under Section 1202 (current as of June 2026).
• IRS Chief Counsel Advice 201620008 (SAFE / convertible note QSBS conversion timing).
• IRS Priority Guidance Plan 2025-2026. irs.gov/privacy-disclosure/priority-guidance-plan
• Public Law 119-21, Section 70432 (One Big Beautiful Bill Act, signed July 4, 2025). congress.gov/bill/119th-congress/house-bill/1
• Joint Committee on Taxation, “General Explanation of Tax Legislation Enacted in 2025” (Bluebook, anticipated late 2026).
• Congressional Research Service, “Section 1202 Qualified Small Business Stock: Overview” (updated August 2025). crsreports.congress.gov

19.2 State statutory, DOR, and case law

• California: Cutler v. FTB (2012) 208 Cal.App.4th 1247; RTC Sections 17014, 17041, 17048, 17742, 17745, 17952, 18152; FTB Publication 1001 (2025); FTB Publication 1031 (2024); FTB Legal Ruling 2003-1; FTB Manual of Audit Procedures Ch. 7; AB 1412 (2013); Bindley v. FTB (2019) 38 Cal.App.5th 1116; Noble v. FTB OTA 2018-OTA-058P. ftb.ca.gov
• Pennsylvania: 72 P.S. Section 7301; PA DOR FAQ ID 3885; PA DOR Personal Income Tax Bulletin PIT-2023-01. revenue.pa.gov
• New Jersey: N.J.S.A. 54A:1-1, 54A:5-1; P.L. 2025 Chapter 67 (A4455 / S4503). nj.gov/treasury/taxation
• New York: N.Y. Tax Law Sections 605(b)(3), 612, 612(b)(40); N.Y. Senate Bill 2025-S8921. tax.ny.gov
• Massachusetts: M.G.L. Chapter 62 Section 5A, 6(m); Article XLIV of the Massachusetts Constitution (Fair Share Amendment, 2022); DOR TIR 22-7 and TIR 23-10; FY26 Tax Expenditure Budget items 1.042 and 1.501. mass.gov/orgs/massachusetts-department-of-revenue
• Hawaii: HRS Sections 235-2.4, 235-51; DOTAX TIR 2024-01. tax.hawaii.gov
• Wisconsin: Wis. Stat. Sections 71.05, 71.05(25); 2023 Wisconsin Act 36 (AB 406); WDOR Publication 103 (2025); WDOR FAQ on Qualified Wisconsin Business Capital Gain Exclusion. revenue.wi.gov
• Alabama: Ala. Code Section 40-18-1 et seq., 40-18-5.
• Mississippi: Miss. Code Section 27-7-15; House Bill 531 (2022).
• Washington: RCW Chapter 82.87; Quinn v. State (2023) 23 Wn.2d 152; WAC 458-20-300. dor.wa.gov

19.3 Practitioner, industry, and academic sources

• AICPA Map of States’ Conformity to the IRC (2026 edition). aicpa-cima.com
• Council on State Taxation (COST), IRC Conformity Chart as of December 31, 2025. cost.org
• Tax Foundation, “Federal Tax Reform and the States: Conformity and Revenue” (2025); Tax Foundation State Individual Income Tax Rates and Brackets 2026. taxfoundation.org
• Keystone Global Partners, “QSBS State Tax Treatment: State Conformity Guide” (2026); “2026 QSBS by State: Eligibility Index.”
• Vide Law, “QSBS State Conformity Map” (2026).
• The Startup Law Blog: “2026 QSBS State-by-State Conformity Guide”; “QSBS Stacking: How to Multiply the $15M Exclusion” (2026); “Section 1045 Rollovers”; “Trust Planning for Washington High Earners: ING, NING, and DING Trusts Under ESSB 6346” (2025).
• The Tax Adviser: “QSBS gets a makeover: What tax pros need to know about Sec. 1202’s new look” (Nov 2025); “Revisiting Sec. 1202: Strategic planning after the 2025 OBBBA expansion” (Dec 2025); “ING trusts: How they work and their continued viability” (May 2025). thetaxadviser.com
• Baker Tilly: “Evaluating section 1202 benefits after OBBBA” (2025); “Changes to section 1202, Qualified Small Business Stock, in the One Big Beautiful Bill Act” (2025); “State income tax planning with ING trusts” (2025).
• Holland and Knight, “One Big Beautiful Bill Act Increases Tax Benefits for Qualified Small Business Stock” (July 2025).
• Davis Wright Tremaine, “QSBS Just Got a Major Upgrade” (July 2025).
• Nelson Mullins, “QSBS Gets a Makeover: Key Changes Under the OBBBA” (2025).
• Dickinson Wright: “One Big Beautiful Bill Act Expands QSBS Tax Incentives” (2025); “A Smart Way to Plan for High State Income Taxes: The Nevada ING Trust” (2025).
• K&L Gates, “Amendments to Section 1202 Tax Exclusion” (August 8, 2025).
• McGuireWoods, “One Big Beautiful Bill Act Provides Expanded Tax Benefit Opportunities for Qualified Small Business Stock Investors” (2025).
• Anchin, “Key QSBS Changes Under the One Big Beautiful Bill” (2025).
• ACTEC Foundation podcast, “Estate Planning Under the One Big Beautiful Bill Act (OBBBA)” (2025).
• RSM US, “The OBBBA expands QSBS exclusions” (2025).
• Hanson Bridgett, “Timing is Everything for QSBS After the One Big Beautiful Bill Act” (July 2025).
• Bernstein, “The New QSBS Playbook: How to Thrive Post-OBBBA” (2025).
• BDO, “Qualified Small Business Stock: Planning for Founders and Early Investors” (2025).
• Cooley LLP, “Section 1202 Qualified Small Business Stock Cheat Sheet” (2025-2026).
• Frost Brown Todd, multiple Section 1202 client alerts (2025).
• FBT Gibbons, “Section 1202 and QSBS: A Survey of States That Don’t Conform to the Federal Treatment” (2025); Section 1045 multi-part series.
• WilmerHale, “State Taxation of Qualified Small Business Stock” (2023, tracked through 2026).
• Foley and Lardner, “QSBS Stacking: Leveraging Gifts and Trusts for Additional Section 1202 Exclusions” (2025).
• Pillsbury Winthrop, “QSBS Stacking and Potential Treasury Guidance” (2025).
• Withum: “Power of Incomplete Non-Grantor Trusts in a Post-TCJA World” (2025); “Trust Planning With Incomplete Non-Grantor Trusts and New York Exempt Resident Trusts” (2025); “Treasury Signals on Stacking” (2025).
• Carta: “QSBS Rollovers”; “QSBS Stacking and Packing Benefits for Founders at Exit” (2025).
• First Citizens Wealth, “Maximize your QSBS exemption” (2025).
• Slowik Estate Planning, “How Entrepreneurs Can Multiply Tax-Free Gains With QSBS Stacking” (March 2026).
• Baker Tax Law, “QSBS Trust Stacking” (2025).
• NAEPC Journal Issue 47, “Non-Grantor Trusts for State Resident-Beneficiaries to Avoid Income Tax” (2025).
• Northern Trust, “Incomplete Non-Grantor Trusts” white paper (2025).
• Lobb and Plewe, “Incomplete Non-Grantor Trusts: The Past, Present and Future” (2025).
• Kulzer and DiPadova, “New Jersey GIT Adds IRC Section 1202 Exclusion for QSBS Gains” (2025).
• EisnerAmper, “New Jersey to Allow Exclusion of Qualified Small Business Stock Gains” (July 2025).
• Mintz, “New Jersey Adopts QSBS Exclusion” (July 2025).
• Brach Eichler, “NJ Qualified Small Business Stock Conformity” (2025).
• Cullen and Dykman, “New York Proposal to Decouple from Federal QSBS Exclusion Under IRC Section 1202” (2025).
• Cherry Bekaert, “2026 State Tax Conformity and Multi-state Business Implications” (2025).
• CohnReznick, “OBBB Tax Law: How Does Your State Conform?” (2025).
• Crowe LLP, “The Patchwork of State Conformity to the OBBBA” (2025).
• DHJJ, “State Conformity to the OBBBA” (2025).
• Tax Executive, “How Does Conformity Impact State Revenues After the OBBBA?” (2025).
• Plante Moran, “Keep the good tax planning rolling: Section 1045 rollover of QSBS” (April 2025).
• KMK Law, “QSBS Tax-Deferred Rollover” (2025).
• Family Capital, “Family Offices and the Section 1202 Trade” (March 2026).
• Stanford GSB Search Fund Study (2024 edition).
• HBS Search Fund Primer (2024).
• Country Tax Calc, “Moving From California Tax Guide 2026” (2026).
• Kugelman Law, “California Residency Audit: How the FTB Decides If You Really Left” (2025).
• James Burns Law, “How to Legally Expatriate from California” (2025).
• Tax Lawyers Group, “California FTB Residency Tax Audit Defense” (2025).
• Herbert Financial Group, “FTB Audit Triggers California Business Owners Need to Watch in 2025” (2025).
• Clark Allison, “Can You Move to Texas to Avoid California’s Capital Gains Tax?” (2025).
• California Department of Finance, Tax Expenditure Report 2024.
• Pennsylvania Independent Fiscal Office Tax Expenditure Reports 2024 and 2025.

20. Frequently Asked Questions

Related research: for M&A multiples extracted from SEC EDGAR 8-K Item 2.01 + Rule 3-05 target financials disclosures (11,408 filings + 19.4% trigger rate); median public-buyer EV/EBITDA 9.8x; SaaS 6.1x EV/Rev + Rule of 40; healthcare 9.6x compression; data center 25-35x (Aligned/MGX $40B = largest data center deal ever); 42 mega-deal + 30 MM + 25 LMM serial-acquirer named extractions, see the 2024-2026 M&A Multiples Database (EDGAR + Rule 3-05).

Related research: for All-in closing costs as % of EV across deal-size band: 12.3% at $5M / 8.3% at $25M / 7% at $50M / 5.9% at $100M / 4.5% at $250M / 3.6% at $500M; the ‘1% rule’ debunked; Houlihan Lokey FY25 $2.39B revenue; HSR 2026 six-tier fee schedule $35K-$2.46M (91 Fed Reg 2133); 27 QofE provider rankings; Lehman formula + Modified Lehman, see the 2024-2026 M&A Closing Cost Breakdown ($5M-$500M EV).

Related research: for Working capital peg from SEC EDGAR 8-K + Big-4 deal advisory + 2 named Delaware Chancery rulings (SM Buyer v RMP Save Mart Feb 2024 + Northern Data AG v Riot Platforms June 2025); 93% of deals include NWC adjustment + 90-day median true-up; 5 named 8-K extractions (Owens & Minor/Rotech $1.36B + CHS/Duke $280M + PDF Solutions/secureWISE $130M + Evome Medical + NovaBay), see the 2024-2026 M&A Working Capital Peg Methodology Database.

Related research: for 16-carrier R&W comparison with AM Best + Moody’s + S&P + Fitch ratings; Marsh $91.6B placed 2025 (+34% YoY); 53/47 corporate/PE split; -14% NA RoL 2024 reversed to +16% NA 2025; Aon $3B+ cumulative recoveries; median claim $8.2M 2025 vs $5.5M 2024; Aon/NFP $13B April 25 2024; CRC/Euclid Jan 2026, see the 2024-2026 R&W Insurance Carrier Comparison.

Related research: for SBA 7(a) FY2025 $37.3B total / $8.29B acquisition segment; Live Oak Bank NYSE: LOB #1 at $2.8B / 2,280 loans +44% YoY; Newtek #2 at $2.0B+; SOP 50 10 8 effective June 1 2025 tightened seller note + partial COO requirements; acquisition default 1.93% vs 2.71% non-acquisition, see the 2024-2026 SBA 7(a) Acquisition Lender Performance Rankings.

Related research: for 50-state non-compete enforceability map post-FTC vacatur (16 CFR Part 910 removed Feb 12 2026 via 91 Fed Reg 6712); 5 total ban states for employees (CA SB 699 + AB 1076 Jan 1 2024 + MN § 181.988 + ND + OK + DC); Sunder Energy Del Dec 10 2024 blue-pencil refusal; U.S. v. Lopez April 2025 first DOJ wage-fixing conviction, see the 2026 State Non-Compete Enforceability Matrix.

Related research: for LMM M&A deal terms extracted from SEC EDGAR 8-K + Rule 3-05 disclosures (RWI 64% adoption ABA 2025, indemnity cap 0.25% with RWI, earnout 18%, double-scrape 56%, Marsh $91.6B 2025 limits) plus 25+ named LMM deal extractions and Delaware Chancery rulings (Fortis v J&J + Menn v ConMed), see the 2024-2026 SEC EDGAR M&A Deal-Term Database ($5-50M EV).

Q: Does California conform to IRC Section 1202?

No. California has not conformed to Section 1202 since 2013, when Assembly Bill 1412 repealed the prior partial exclusion at RTC Sections 18152.5 and 18038.5 following Cutler v. Franchise Tax Board (2012) 208 Cal.App.4th 1247. California requires a full add-back of any federal Section 1202 exclusion on Schedule CA, taxing the gain at up to 14.4% (13.3% top marginal rate plus 1% Mental Health Services Tax surcharge).

Q: Does Pennsylvania conform to Section 1202?

No. Pennsylvania does not incorporate Subchapter P of the IRC. Pennsylvania DOR FAQ ID 3885 confirms that Section 1202 is not recognized. The full gain is taxed at the flat 3.07% Personal Income Tax rate.

Q: What did OBBBA change about Section 1202?

Section 70432 of OBBBA (P.L. 119-21, signed July 4, 2025) made four changes for stock acquired after July 4, 2025: (1) raised the per-shareholder per-issuer cap from $10M to $15M; (2) raised the issuer aggregate gross assets cap from $50M to $75M; (3) added a tiered holding-period exclusion (3 years at 50%, 4 years at 75%, 5 years at 100%); (4) re-engaged the 7% AMT preference for the 3-year and 4-year tiers. Inflation indexing begins in 2027. Pre-OBBBA stock remains on the prior rules.

Q: When does New Jersey begin conforming to Section 1202?

For tax years beginning on or after January 1, 2026. P.L. 2025 Chapter 67 (A4455 / S4503), signed June 30, 2025, amended N.J.S.A. 54A:5-1 to exempt from New Jersey gross income any gain from the sale or exchange of QSBS to the extent the gain is excluded under federal Section 1202. Pre-2026 sales remain subject to the 10.75% top rate.

Q: How is Washington’s 7% capital gains excise tax applied to QSBS?

The Washington DOR position, per WAC 458-20-300 and DOR FAQ updates through May 2026, is that QSBS gain is subject to the 7% excise tax to the extent the gain exceeds the $270,000 standard deduction (indexed). The statute (RCW Chapter 82.87, upheld in Quinn v. State (2023) 23 Wn.2d 152) does not contain a Section 1202 QSBS exemption. This position has not been litigated specifically on QSBS facts.

Q: Can a non-grantor trust claim its own Section 1202 exclusion?

Yes, under IRC Section 1202(g)(1) for pass-through entities and per IRS practice treating an irrevocable non-grantor trust as the eligible taxpayer holder. The trust files its own federal Form 1041, claims its own exclusion up to the per-issuer cap ($10M pre-OBBBA, $15M post-OBBBA), and pays no state income tax if sitused in a no-state-PIT jurisdiction (Nevada, Delaware, South Dakota, Wyoming) with no resident-beneficiary distributions in the sale year. The trust must be a true separate taxpayer with distinct beneficiaries and independent fiduciary administration to avoid IRC Section 643(f) aggregation.

Q: Is the California 546-day safe harbor available for QSBS exits?

Rarely. RTC Section 17014(d) requires intangible income under $200,000 during the tax year and employment-related absence. Most QSBS-eligible founders and angel investors have intangible income above the threshold (dividends, interest, portfolio income) and are not relocating for employment reasons. The safe harbor is a worker-relocation provision, not a sale-driven provision. True domicile change with full documentary record is the standard planning lever, not the safe harbor.

Q: Does Massachusetts’s 4% millionaire surtax apply to QSBS gain?

Not to the federally-excluded portion. The Fair Share Amendment surtax under M.G.L. Chapter 62 Section 5A applies to taxable income exceeding $1 million (indexed; 2025 threshold $1,053,750). Federally-excluded Section 1202 gain is not included in taxable income for surtax purposes. Practitioner debate continues on whether non-QSBS income that pushes a taxpayer over the threshold in a QSBS sale year carries the surtax; Massachusetts DOR TIR 23-10 (2023) addresses surtax mechanics generally.

Q: How long should I keep QSBS documentation after sale?

Ten years from the year of sale, conservative. Federal IRS Section 1202 examinations generally occur 18 to 36 months post-sale; California FTB residency audits occur 24 to 48 months post-sale and sometimes longer. Retain original issuance documents, issuer attestations, cap table snapshots, 80% active-business confirmations, residency documentation, and trust formation and administration records.

Q: What is the difference between NING, DING, SDING, and WING trusts?

Each is an Incomplete Non-Grantor Trust sitused in a no-state-PIT jurisdiction. NING is Nevada (Nev. Rev. Stat. Ch. 166); DING is Delaware (12 Del. C. Sections 3528, 3536); SDING is South Dakota (SDCL Sections 55-1A, 55-3, with the Dynasty Trust framework); WING is Wyoming (Wyo. Stat. Section 4-10-101 et seq.). The choice typically turns on directed-trust statutes, perpetual duration, asset protection, and trustee availability. California and New York have anti-ING add-back rules (RTC Section 17742; N.Y. Tax Law Section 612(b)(40)) requiring careful structuring.