QSBS Stacking: Multiplying the §1202 Exclusion Across Non-Grantor Trusts

The per-issuer cap, in one rule

QSBS exclusion is per taxpayer, per issuer, capped at the greater of the statutory dollar cap ($10M pre-OBBBA, $15M for stock issued on/after July 4, 2025) or 10× the taxpayer's adjusted basis in stock issued during the year. Stacking and packing are the two strategies that operate around this rule.

Stacking via non-grantor trusts

Each non-grantor trust is a separate taxpayer with its own per-issuer cap. Gifting QSBS shares to multiple non-grantor trusts before sale multiplies the available exclusion across the family.

What kind of trust qualifies

• Non-grantor trust — must be a separate taxpayer for income tax purposes (files its own Form 1041).
• Irrevocable — donor cannot retain powers that would cause grantor-trust status.
• Different beneficiaries — trusts must not be substantially identical or the IRS may challenge under the multiple-trust rule.
• State sourcing — trust situs in a non-income-tax state can also eliminate state capital gains tax on the trust's share.

Timing — why 12 months matter

1. QSBS gifts must occur before a binding agreement to sell — gifts after a Letter of Intent are subject to assignment-of-income challenges.
2. Establish trusts and complete gifts at least 12 months before any expected exit. Earlier is safer.
3. The donee trust steps into the donor's holding period — the 5-year clock continues to run, but the trust must hold the shares through sale.

Packing — raising the 10× basis ceiling

The per-issuer cap is the greater of the dollar cap or 10× basis. Founders with low basis are typically constrained by the dollar cap. Contributing appreciated property — IP, equipment, real estate — to the corporation in exchange for additional QSBS at issuance raises the founder's basis and therefore raises the 10× ceiling. For very large exits, packing can unlock exclusion that stacking cannot.

OBBBA changes (post-July 4, 2025)

Two regimes will coexist for years. Each tranche of stock must be tracked under its own ruleset.

Mistakes that destroy the strategy

• Gifting after the LOI is signed (assignment of income).
• Funding multiple trusts with substantially identical beneficiaries (multiple-trust rule challenge).
• Letting a trust trustee with a quasi-grantor relationship trigger grantor-trust status.
• Forgetting the qualified-business test as the company evolves into an excluded line.
• Failing to obtain a QSBS opinion letter before the LOI is signed.