QSBS Audit Defense: The Documentation Vault
QSBS Audit Defense: The Documentation Vault
The burden of proof is on you. How to bulletproof your $10M+ exclusion with contemporaneous evidence.
Executive Summary
- Burden of Proof: The taxpayer must prove eligibility. Without specific records dating back 5+ years, the IRS can deny the exclusion even if you rightfully qualified.
- The “Vault” Strategy: You must collect evidence contemporaneously (in real-time), not at the time of exit. Reconstructing 5 years of asset tests is impossible.
- Form 8949: The exclusion is officially claimed on Form 8949 (Sales and Other Dispositions of Capital Assets) using code “Q”.
The “Missing Officer” Risk
By the time you exit (Year 5+), the CFO or Founders who knew the details may have left. If corporate minutes or asset test data are missing, your $15M tax break evaporates.
Mechanic: The Defense Grid
Code Q
Form 8949
Quarterly
Asset Testing
7 Years
Record Retention
0%
Assumption
Simulation: Audit Survival Rate (Docs vs. No Docs)
Probability of Sustaining Exclusion Under Audit
| Document Category | Required Evidence | Critical Check |
|---|---|---|
| Origin Story | Stock Certificates | “Original Issue” Proof |
| Asset Test | Quarterly Balance Sheets | <10% Real Estate / Cash |
| Cap Table | Redemption History | No Buybacks (2Y Window) |
“In tax law, if it isn’t documented, it didn’t happen. Treat your compliance file as an asset worth $15M—because it is.”
Essential Resources
INTERNAL
BMT Playbooks