QSBS Eligibility for Cross-Border Founders: The $10M Capital Gains Exclusion

Section 1202 of the Internal Revenue Code — Qualified Small Business Stock (QSBS) — provides an exclusion of up to $10 million (or 10 times the adjusted basis, whichever is greater) in capital gains on the sale of qualifying stock. For founders who hold C-Corporation stock for more than five years and satisfy the statutory requirements, the tax savings on an exit event can be substantial. On a $5 million gain, the exclusion can eliminate approximately $1.19 million in federal capital gains tax at the current 23.8% rate (20% long-term capital gains plus 3.8% net investment income tax).

For domestic founders operating a single-jurisdiction business, the eligibility analysis is relatively straightforward. For cross-border founders, the picture changes. The interaction between QSBS eligibility, entity structure, tax residency, treaty provisions, expatriation rules, and state conformity creates an environment where each requirement carries additional variables. A founder who incorporates a Delaware C-Corp while residing in Singapore, or who moves from California to Portugal during the holding period, faces a different eligibility matrix than the domestic case assumes.

This article maps the QSBS eligibility requirements, identifies where cross-border structures introduce complexity, and presents a checklist framework for evaluating whether the exclusion applies to a given founder's situation.