qualified small business stock (QSB stock)
(1) Qualified small business stock. The term qualified small business stock (QSB stock) has the meaning provided in section 1202(c). The term QSB stock does not include an interest in a partnership that purchases or holds QSB stock. See Example 1 of paragraph (i) of this section. (2) Replacement QSB stock. The term replacement QSB stock is any QSB stock purchased within 60 days beginning on the date of a sale of QSB stock. (3) Eligible partner(i) In general. Except as provided in paragraphs (e)(1), (g)(3)(ii), (iii) and (iv) of this section, an eligible partner with respect to QSB stock is a taxpayer other than a C corporation that holds an interest in a partnership on the date the partnership acquires the QSB stock and at all times thereafter for more than 6 months until the partnership sells or distributes the QSB stock. (ii) Acquisition by gift or at death. For purposes of paragraph (g)(3)(i) of this section, a taxpayer who acquires from a partner (other than a C corporation) by gift or at death an interest in a partnership that holds QSB stock is treated as having held the acquired interest in the partnership during the period the partner (other than a C corporation) held the interest in the partnership. (iii) Tiered partnership. For purposes of paragraph (g)(3)(i) of this section, if a partnership (upper-tier partnership) holds an interest in another partnership (lower-tier partnership) that holds QSB stock, then the upper-tier partnership's ownership of the lower-tier partnership is disregarded and each partner of the upper-tier partnership is treated as owning the interest in the lower-tier partnership directly. The partner of the upper-tier partnership is treated as owning the interest in the lower-tier partnership during the period in which both (A) The partner of the upper-tier partnership held an interest in the upper-tier partnership; and (B) The upper-tier partnership held an interest in the lower-tier partnership. See Examples 3 and 4 of paragraph (i) of this section. (iv) Multiple tiers of partnerships. Principles similar to those described in paragraph (g)(3)(iii) of this section apply where a taxpayer holds an interest in a lower-tier partnership through multiple tiers of partnerships. (4) Month(s). For purposes of this section, the term month(s) means a period commencing on the same numerical day of any calendar month as the day on which the QSB stock is sold and ending with the close of the day preceding the numerically corresponding day of the succeeding calendar month or, if there is no corresponding day, with the last day of the succeeding calendar month.