Documenting QSBS: The Issuer Attestation Letter and What It Must Include

Your tender offer settles for $40 per share on 200,000 QSBS-eligible shares with a $0.02 basis. Total gain: $7.996 million. You plan to exclude the full amount under §1202 on your next tax return. Your CPA asks for your QSBS attestation letter from the issuer. The company CFO has never heard the term and says the finance team can provide “a letter confirming you were an employee” but nothing specific to QSBS. The IRS will want the attestation during audit. Without it, your exclusion could be denied despite meeting all the §1202 substantive tests.

A QSBS attestation letter is the issuer’s written confirmation that the company met the §1202 qualified-small-business tests at the time of your stock issuance. It is not required by statute but is expected in IRS audit practice. Companies that have produced attestation letters as a matter of course make the eventual exclusion smoother. Companies that have not make audit defense harder.

This guide walks through what an attestation letter should include, when to request one, and how to prepare supporting documentation for your eventual QSBS claim.

What the attestation covers

A comprehensive attestation letter addresses the key §1202 requirements:

Corporate form

The company was a domestic C-corporation at the time of stock issuance and has maintained C-corp status throughout the holding period to date.

Gross-assets test

The company’s aggregate gross assets, as measured for §1202 purposes (basis-adjusted for most assets, FMV for cash and marketable securities), did not exceed $50 million at any time before the stock issuance and immediately after the issuance.

The letter should include the specific gross-assets calculation at the relevant date, with reference to the company’s financial records.

Qualified trade or business

The company was engaged in a qualified trade or business under §1202(e) at the time of issuance and has continued to conduct a qualified trade or business throughout the holding period.

The letter should identify the primary business activity and affirmatively state it is not in an excluded category under §1202(e)(3).

Active-business test

At least 80% of the company’s assets (by value) were used in the active conduct of one or more qualified trades or businesses throughout the holding period.

Compensation / stock issuance

The stock was issued to the shareholder at original issuance (not a secondary market purchase). The letter identifies the shareholder, the stock issuance date, the number of shares, and the consideration paid (if any).

Representations and warranties

The company makes specific representations about the eligibility of the stock and agrees to provide supporting documentation to the IRS if requested.

Sample attestation structure

A typical letter includes:

Identification of the issuer (Name, EIN, incorporation state, date of incorporation)
Identification of the shareholder and the specific shares covered
Dates of relevant issuances (option grants, exercises, RSU settlements, direct purchases)
Gross-assets calculation at each relevant date
Affirmative statement of qualified-trade-or-business status
Affirmative statement of active-business test compliance
Statement that the corporation has filed all relevant tax returns
Signature by an authorized officer (usually CFO or General Counsel)
Date of letter

When to request the letter

Before sale, not after

Request the attestation before your sale event. Companies are more responsive to attestation requests from current and former employees with clear QSBS exposure than from departed employees asking years after a sale. If you have already sold without an attestation, you can still request one retroactively, but the company’s cooperation may be weaker.

During tender offer windows

If your company runs a tender offer, request an attestation as part of the tender participation. Companies facilitating tenders often provide attestation as standard documentation because it benefits all participating sellers.

Before IPO

Pre-IPO is the ideal time to request. Companies preparing for IPO often formalize their QSBS documentation for employee retention and cap-table planning reasons.

Post-acquisition (less ideal but possible)

If the company is acquired, the successor may or may not cooperate with QSBS attestation requests. Acquirers typically have no obligation and limited motivation to support pre-acquisition shareholders’ tax planning. Get attestation before the acquisition closes if possible.

What to do if the company refuses

Some companies refuse to issue QSBS attestations. Reasons vary:

Legal exposure concerns (company does not want to sign a representation that could be challenged later)
Administrative burden for legal/finance teams
Unfamiliarity with QSBS and general reluctance to engage with novel tax matters
Specific facts the company knows would undermine the attestation

Build your own documentation

If the company will not issue a formal attestation, gather documentation yourself:

Your grant agreement, exercise notices, and share certificates
Company financial statements around each issuance date (sometimes in public SEC filings for pre-IPO companies with Reg D filings)
Public announcements of financings with disclosed post-money valuations and raise amounts
Board decks or press releases discussing the company’s business
409A reports if obtainable (sometimes shared with departing executives)

Engage a QSBS consultant

Specialty firms (typically tax-boutique consultancies) will perform QSBS due diligence on a company’s eligibility, even without full cooperation from the issuer. They produce an opinion letter based on the available data. Costs range from $10,000 to $50,000+ depending on complexity.

Accept the IRS audit risk

If documentation is limited and the company will not cooperate, you can still claim the exclusion on your return. Audit risk is higher without strong documentation. The IRS may request supporting records; without them, the exclusion can be disallowed.

Most experienced CPAs will advise claiming the exclusion with appropriate documentation efforts and prepare for audit if needed.

Documenting the 5-year holding period

Independent of the issuer attestation, you need to document your own holding period:

Exercise records

Exercise notices, wire transfers, option-exercise paperwork. Establish the exact date you acquired the stock.

§83(b) election confirmation

For early-exercised shares, the filed §83(b) election is critical. Keep the IRS filing receipt or equivalent proof.

Original share issuances, any transfers (gifts to trusts, etc.), and secondary transactions all need documentation.

Grant date vs exercise date clarity

Document both for each lot. Grant date matters for the 2-year grant rule in ISOs and for the QSBS timing in some structures. Exercise date is usually when the QSBS clock starts.

Audit preparation

If your QSBS exclusion is audited, the IRS will likely request:

Company’s attestation or equivalent documentation of §1202 eligibility
Your exercise and holding documentation
Tax returns for the year of exclusion showing Schedule D reporting
Sale documentation (purchase agreement, settlement statements)
Any §1045 rollover documentation if applicable

Having this organized in a single file saves substantial audit defense cost. Some taxpayers prepare a “QSBS file” at the time of sale, with all documentation referenced for easy production during audit.

Timing considerations

Attestation letters dated close to the sale event are most useful. A stale attestation from years ago may have limited evidentiary value if the company’s facts have changed (which they will, post-financing, post-M&A, post-growth).

Annual attestation updates are ideal for ongoing employees holding QSBS. Some companies provide annual QSBS updates as part of their annual compensation and tax-reporting cycle.

Sample attestation request email

A well-framed request:

Subject: QSBS Attestation Request for Tax Planning

Hi [CFO / Legal],

I am preparing tax documentation for an upcoming share sale and my CPA has asked for an issuer attestation letter supporting the Section 1202 QSBS eligibility of my shares.

Specifically, I acquired [X shares] on [date] through [exercise / purchase / etc.]. I am seeking confirmation that [Company] met the qualified small business tests at that time, including the $50M gross-assets limit, the qualified trade or business test, and the active-business test.

I have attached a template attestation letter my CPA has suggested. Most of the details are company-internal facts that your finance team can verify. Your signature on an attestation would significantly simplify my tax filing.

Happy to discuss if there are concerns or additional steps. Thank you.

Sending a pre-drafted template letter is more effective than asking the company to draft from scratch.

Frequently asked

Is an attestation letter legally required?

No. §1202 does not require issuer attestation. But the IRS expects documentation of eligibility, and the attestation is the most efficient form.

Can the attestation be issued by an officer’s email or a formal letter?

Formal letter on company letterhead signed by an authorized officer is preferred. Emails or informal communications may have weaker evidentiary value.

What if the company’s lawyers refuse to sign?

Sometimes negotiable by narrowing the attestation scope (e.g., attesting only to specific facts the company is confident about, like gross assets at a specific date) rather than broad attestations.

Does the attestation need to be updated periodically?

For ongoing employees, yes. Annual or event-based updates (post-financing, post-acquisition) keep the documentation current.

Can I get an attestation after selling?

Yes, but company cooperation may be lower. Request immediately post-sale if you did not get one pre-sale.

Does a public company need to issue attestation?

Most public companies no longer qualify as QSBs (gross assets exceed $50M post-IPO). Historical QSBS positions from pre-IPO grants may still be attested if the company maintains pre-IPO records.

Next step

If you have QSBS holdings and no issuer attestation, send an email to your company’s CFO or general counsel now. Include a template attestation and explain your tax-planning purpose. Follow up within 2-3 weeks if no response. If you are approaching a sale event or liquidity event, make the attestation request part of your pre-sale checklist. Document the response (or lack of response) for your tax records.