QSBS Attestation Letters for GPU Cloud and Hardware Startups

What can a GPU cloud or hardware startup confirm in a QSBS attestation letter?

A company can confirm facts about itself, not a holder's exclusion. For stock issued after July 4, 2025, its aggregate gross assets must stay at or under $75,000,000 at all times before each issuance and right after it ($50,000,000 for earlier stock), and at least 80% of its assets by value must be used in a business that is not excluded (26 U.S.C. 1202; P.L. 119-21, section 70431).

A QSBS attestation or representation letter is the company's own statement, signed by an officer. No IRS form exists for it and nothing is filed. The law lets the IRS require company reports (1202(d)(1)(C)), but no regulation does; the only regulation under today's section 1202, 26 CFR 1.1202-2, covers buybacks.

Two questions are unsettled for GPU clouds and other AI infrastructure startups: whether renting out GPU capacity is "leasing", and whether design work is "engineering". Both are excluded businesses, and neither word is defined. A careful letter states facts and describes contracts instead of answering them. It is not a legal opinion, a valuation (including a 409A), a research credit study or an audit.

Which section 1202 tests belong to the company, and which to the holder?

The company answers for its status, size, activities and buybacks. The holder answers for how and when they got the shares and how long they held them.

The holder answers for:

• Buying from the company at original issue, not from another holder in a secondary sale.
• Holding period: stock acquired after July 4, 2025 gets 50% of eligible gain excluded after 3 years, 75% after 4 and 100% after 5; earlier stock needs more than 5 years.
• The per-company cap: the greater of $15,000,000 ($10,000,000 for earlier stock) or 10 times basis.
• Not being a corporation: corporate holders get no exclusion.
• Reporting the sale on Form 8949 and Schedule D (instructions).

Does renting out GPU capacity make a GPU cloud a leasing business?

It depends on the contract, and no rule answers it. A neocloud, a cloud company built around renting GPU compute, sells something that can look like a service or like a lease of servers. Section 1202(e)(3)(B) excludes "leasing" without defining it.

The closest test in the Code is 26 U.S.C. 7701(e), which treats a contract that "purports to be a service contract" as a lease after weighing factors including six it lists. It applies throughout chapter 1, which includes section 1202, so it can recast a contract as a lease, but no rule says when such contracts make a company a "leasing" business.

The active test counts assets across "1 or more" businesses, so a lease-like slice of the fleet can sink the whole company (see the second example). The passive rental rules in renting out GPU servers are a different test.

Does engineering work make a chip, liquid cooling or power hardware startup an excluded business?

Selling hardware is not on the excluded list; being paid for engineering services may be. Section 1202(e)(3)(A) excludes businesses "involving the performance of services in the fields of" engineering, consulting and others, and businesses whose principal asset is employees' reputation or skill. No section 1202 regulation defines these fields.

• A chip startup or coolant distribution unit maker paid for products it designed differs from one paid for design work, but no rule draws the line.
• Non-recurring engineering fees, custom board or cold plate design and integration services are the revenue lines investors ask about.

Section 199A's rules do not help, since that section leaves engineering out of its own list (199A(d)(2)(A)), and private letter rulings bind only the company that asked (6110(k)(3)). A statement that shows revenue by line leaves the question open instead of declaring it settled.

How is the gross assets test measured?

Gross assets are cash plus the adjusted tax basis of everything else: roughly what the company paid, minus the depreciation it has deducted on its tax returns (1202(d)(2)). It is not market value or book value.

• Not the balance sheet. Schedule L follows the books (Form 1120 instructions), and so does Delaware franchise tax. Neither is the QSBS number.
• Depreciation lowers it. Basis falls by depreciation, bonus depreciation and Section 179 (Pub. 551), so GPU servers written off with bonus carry little or no basis (writing off GPU servers). Electing out of bonus for a property class, or the reduced 2025 transitional rate, keeps more basis in the total and can push it over the limit; the company elects on its return filed by the due date, including extensions, and revoking needs IRS consent (26 CFR 1.168(k)-2(f)). How to measure basis partway through the purchase year is not settled. Using cost until year-end is a cautious practice, not a rule.
• Debt is not subtracted. A GPU-backed loan, vendor financing or a customer's prepayment for reserved capacity all raise the total.
• The round counts: the test right after issuance includes "amounts received in the issuance".
• Contributed property counts at its fair market value when contributed.
• Receivables count at face on the accrual method and at zero on the cash method, since cash-method income is not yet taxed (Pub. 538).
• Related corporations count. All corporations in one chain of more-than-50% ownership are one company: the startup, the corporations it owns more than that share of, and any corporation that owns more than that share of the startup, with that owner's other subsidiaries. Any predecessor counts too. A Canadian or Taiwanese engineering subsidiary is generally included: section 1202 borrows only section 1563(a)(1), not the rule in 1563(b) that leaves foreign corporations out, and no IRS guidance says otherwise.

Spending raised cash on GPUs leaves the total unchanged at purchase, since cash becomes basis; depreciation then lowers it. Borrowing raises the total the day the loan funds.

Can a Series B or a big GPU purchase push the company over the limit?

A round can, and so can a GPU purchase financed by a loan or vendor credit; one paid from cash cannot, since cash becomes basis. Once gross assets ever pass the limit, no later issuance qualifies, including option exercises and stock issued when a SAFE or note converts (when SAFE stock counts as acquired). Stock already issued keeps its status under this test.

For stock issued after July 4, 2025, the "at all times before" history also uses $75,000,000 (P.L. 119-21, section 70431(c)), so a company that passed $50,000,000 but never $75,000,000 can issue qualifying stock again. The new-stock dollar limits will be indexed for inflation; no indexed amount was published when this page was checked.

How does the active business test treat a GPU fleet and unspent cash?

The active test uses value, not basis, so a written-off GPU fleet counts at what it is worth (1202(e)).

• Research counts. Assets used in startup activities, section 174 or 174A research or in-house research for a future business that is not excluded are active, even before revenue.
• Cash counts if held for reasonably required working capital, or expected to fund research or working capital increases within 2 years. After year 2, at most 50% of assets can qualify this way. Whether cash held for the next GPU order is working capital is not settled.
• Subsidiaries are looked through: the parent counts its share of their assets and activities.

"Substantially all" of the holding period is undefined. Schedule at each issuance and each year-end at minimum; a quarter-end schedule catches a cash pile after a round. That cadence is practice, not law.

What records back the company's statement?

• Charter and tax-status history.
• Stock ledger: each issuance's date, consideration and price.
• Gross-asset schedule at each issuance, from the fixed-asset register (tax basis) and bank balances, subsidiaries included.
• Active-asset schedule by value, with the source of the values.
• Revenue by line, with key contract terms: exclusivity, control, term.
• Buyback log.
• Forms 1120 and 4562.
• Budget or board minutes showing planned use of cash.

What else changes the answer?

• Buybacks: a company purchase from a holder or related person within 2 years before or after issuance taints that holder's stock; purchases over 5% of total stock value within 1 year before or after taint every share issued then. Purchases of $10,000 or less, or 2% or less, are ignored, as are those from an employee or director leaving, for stock received for services, and on death, disability or divorce (1.1202-2). A sale between holders is not a company purchase.
• Real estate: renting out space is not an active business.
• S corporation stock is not QSBS: switching an S corporation to a C corporation.
• LLC conversions: stock is acquired at conversion, with basis no lower than the property's value: changing your business structure.
• Canadian flips: Delaware shares received for Canadian company shares were acquired for stock and generally do not qualify; new shares bought for cash later can: moving a Canadian startup under a Delaware parent.
• States: California does not conform (FTB); check the holder's state.
• Stock options: an option is not stock. The share is issued at exercise, so the company's gross-assets test runs on the exercise date, not the grant date.
• Founders abroad: a nonresident without a US tax home generally owes no US tax on the gain from US startup shares, since it is foreign-source, unless the company is mainly US real estate; so the exclusion rarely matters and their home country decides (Pub. 519). See Canadian founder selling US startup shares.
• Gifts and trusts can change how caps apply; that is wealth planning, outside this page.

Example

All figures are illustrative and in US dollars.

A $60,000,000 Series B for a GPU cloud

A Delaware GPU cloud in a Virginia colocation data center holds $20,000,000 cash and $5,000,000 of deposits and receivables (accrual method). Its $30,000,000 of GPU servers, bought in 2025 after January 19 and fully deducted with bonus, have $0 tax basis though the books carry about $25,000,000. Gross assets: $25,000,000.

After a $60,000,000 Series B, gross assets are $85,000,000. The Series B shares fail; seed and Series A shares keep their status; every later issuance fails, including option exercises. Raising $45,000,000 instead gives $70,000,000 and passes, and spending it on servers changes nothing at purchase. A later $30,000,000 GPU-backed loan lifts the total to $100,000,000, and no later stock qualifies. Had it elected out of bonus for five-year property, the servers would keep about $24,000,000 of basis after first-year depreciation, and the $45,000,000 raise would give $94,000,000 and fail.

A reserved cluster that may be a lease

A GPU cloud holds $60,000,000 of assets by value: $35,000,000 of servers running multi-tenant on-demand compute, $15,000,000 of bare-metal clusters reserved for three years by one customer (own software stack, take-or-pay, dedicated cage) and $10,000,000 of working capital. If the reserved clusters are leasing, active assets are 75% and the company fails for that period; if they are a compute service, it passes at 100%. Its statement describes the contract terms instead of picking an answer.

A liquid cooling startup holding its Series A

In its third year, a liquid cooling startup holds $40,000,000 of cash and $10,000,000 of test rigs, prototypes and coolant distribution unit inventory. Only $25,000,000 of the cash (half of $50,000,000) can count, so active assets are at most 70% and it fails for that period. After it spends $10,000,000 on equipment and inventory, active assets reach 90%. If its $2,000,000 a year of custom cold plate design for one customer is an engineering service, the assets used in it drop out of the count.

Different for you?

• A round, loan or GPU order near the limit, or contracts that could be leases: the schedules need judgment before an officer signs; see data center and infrastructure tax services.
• Still choosing an entity: LLC or C corporation.
• Vesting founder shares or an 83(b) election: founder shares that vest.
• SAFEs or convertible notes on the return: SAFEs and convertible notes.
• Missed filings found in due diligence: tax clean-up before investor due diligence.
• An exit by stock or asset sale: selling your business.
• Founders living in Canada: Canadian founder selling US startup shares and cross-border tax services.