Visions & Voices - QSBS, Stacking Strategies, Tax Planning & What Founders Need to Know

0:01 [music] >> Welcome to Visions and Voices, the podcast where we [music] explore the ideas, strategies, and innovation shaping the world of family offices, wealth management, [music] and ultra high net worth families. I'm your host, Chris Maze, partner at Armanino and leader of our family office practice. Today, I'm joined by Christopher Caracciolo, partner at Hanson Bridget, one of the nation's leading authorities on qualified small business stock, commonly known as QSBS. QSBS has become one of the most powerful tax planning opportunities available to entrepreneurs, founders, investors, and families with concentrated private business holdings.

0:42 When structured properly, it can provide the opportunity to exclude millions and in some cases hundreds of millions of dollars of capital gains from federal income tax. One of the most discussed and misunderstood strategies in the area of QSBS in is QSBS stacking. The concept sounds simple, leveraging multiple taxpayers or trusts to multiply available gain exclusions. In practice, however, the planning involves complex considerations around trust design, timing, attribution rules, economic substance, and evolving IRS scrutiny.

1:18 Christopher has spent years advising founders, investors, family offices, and their advisors on these issues, helping clients navigate both the opportunities and the pitfalls of advanced QSBS planning. In our conversation today, we will discuss the fundamentals of QSBS, how stacking strategies work, and the role of non-grantor trusts, common mistakes advisors make, recent developments in the law, and what families should be thinking about well before a liquidity event is on the horizon. Christopher, welcome to Visions and Voices.

1:53 >> Thank you, Chris. It's a a good pleasure to be here. >> So, how did you how did you get into this Um, um helping founders and you know equity holders in QSBS eligible companies? Um >> A series of poor decisions and mistakes. Let me tell you. So, so I got into QSBS in 2012, right? That is in 2012, California California used to have conforming QSBS rules, right? We used to have the 50% exclusion way back in the day and what I used to do is every Saturday I used to go to the office and write articles and to get away from my family, you know, because I I wanted to avoid the kids at that time.

2:38 So, I would go Saturday and I would work on articles, write articles. And I've been doing a bunch of work on on audits of California QSBS and I kept uh I just kept publishing on the the California sort of resolution where they kicked out QSBS in 2012 and then I started giving presentations and publishing more and then in 2015 that's when the 100% exclusion came online. Remember, you had to get shares after September 2010. So, in the fall of 2015, people started saying, "Whoa, wait a second. This is really a 100% exclusion on $10 million?"

3:14 Right? And the guys the the fintech guys in Silicon Valley were the first guys to figure this out. Right. >> That's right. >> So, I would get calls from random guys who now like there's stadiums named after their companies, okay? >> [laughter] >> Those guys called me like when they were raising their series B and their series C and said, "Hey, how does QSBS work?" Right? And that was like 2016, 17. So, it was really by a series of mistakes and going to the office and just publishing, you know, stuff about QSBS.

3:44 I was the only one really in 2016 who had anything up on the internet. And so, I just met a whole bunch of that kind of first wave of the fintech guys, and then that evolved and and so now basically 90% of my practice is just talking with founders, venture capitalists, and early employees about QSBS. >> Yeah. You know, that's wild cuz I I remember that point in time as well cuz QSBS was a a Clinton era innovation, right? And it wasn't until the Obama administration that it it really uh gained traction. Very few people adopted it uh >> Because there was no real savings. Like at the 50% or the 75% nobody cared, right? And then but everyone thinks, "Oh, this is such a giveaway." It was under Obama that we went to 100%, right?

4:31 >> Right. That's right. And now Trump is Trump has even accelerated even further, right? With the the $15 million or and up the you know, the he's a phase-in over 5 years of the the the amount of the exclusion. So, it you know, it's it's one of the areas I always point to where it's it's kind of a functional area of the tax code between right left. They they both realize the golden goose, and so they they both move the ball down the field in terms of of improving it.

5:01 >> Yeah, and and it makes sense, right? If you go back to 1993, the legislative history of 1202 in 1993, it says, "We want to encourage investors to invest in startups cuz they fail." Right? Like from a policy standpoint, like we can get into stacking and all that, but from a basic policy standpoint, it makes sense, right? In other words, like you should get this tax benefit cuz if you invest if you're an angel investor or even better, a founder, right? And you're going to like my typical client is some kid who dropped out of Stanford, right? And on the floor of his apartment in Palo Alto or the Mission District started writing code, okay? That kid could have stayed at Stanford and ended up working at Goldman Sachs or Bain or something like that. And instead, he lives on ramen noodles, right? And builds some cool thing and that that proxy that's like that foregone opportunity is like a proxy. In other words, like those guys should get the benefit cuz they made they took that risk.

5:58 >> Yes. >> Right? And what 1202 ultimately is all about is are is there risk, right? If you have risk that you're going to lose all your money cuz you're a venture capitalist or an angel or you know, you're going to there's some other bigger opportunity forgoing like from the founder perspective, you should get that tax benefit. >> Well, you know, it it you brought me some recollection of some of the nuances cuz it it it wasn't [clears throat] until people figured out that carry right? The promote that that venture capitalist get could be QSBS eligible if the documents were drafted correctly.

6:34 And that kind of ripped through that was probably about 2015 as well because I think it was within 30 months there wasn't a single venture back company. In fact, all the safe agreements from all the large law firms that that drafted is all had the QSBS language. >> For sure. For sure. And those guys but there's still an open but that's important like >> [clears throat] >> as well for for people who thinking about how does QSBS work? Like our our our understanding of the rules are not static, right? Like nothing has changed about whether carry gets QSBS.

7:05 There's still language in the section 1045 regs that basically say carry doesn't get QSBS, right? And I remember discussions in 2015, 2016, 2017 where people were super anxious about whether carried interest gets QSBS. Now, every single VC on Sand Hill is taking QSBS through their carry, right? But it's not like the rules have changed. It's just that I think people are more comfortable with uh kind of this gray this grayness in QSBS. >> Didn't the distributions in kind uh provision for for carry kind of fundamentally change that cuz you could distribute shares.

7:43 >> No. 12 that section 1045 regs does this 1045, okay? So, right so 1202 is the exclusion provision, 1045 is the rollover provision, right? And if you look at those regs, the 1045 regs say only the smallest capital interest can participate at the fund level. Right? In other words, there's language, if you're reading 1045 into the 1202, that appears to say only LPs or only capital people who contributed capital to a partnership before investing in the portfolio get QSBS.

8:14 Okay? This is true whether you have an in-kind distribution, I don't care, right? Like there is that like now, as I say, I think everyone is now comfortable that that if you have a profits interest carry in a fund, you can still get QSBS, but my point is like there is conflicting language >> Right. Right. >> at the 1045 level. >> Yeah, okay. I've I've misunderstood that. Um that's good good to know. Okay, so, you know, the reason that we're reporting this right here right now is there's a rumor out there that uh uh Treasury is going to disallow QSBS stacking.

8:48 And um I I know you've been uh somewhat vocal in the zeitgeist on on on the the specifics here, but if you could tell us what QSBS stacking is, and then, you know, let's talk a little bit about the rumor, and then uh let's let's dive into the the you know, the strategies that we we think will be it be able to process post you know, post post this uh uh potential action from Treasury. >> Right. Okay, right. So, so everybody knows that if you get shares of QSBS, right? A qualified trade or business, the rule says each taxpayer can exclude the greater of 10 million or 10 times your basis.

9:31 Post-OBBA is 15 million 10 times your basis, but let's just talk pre-OBBA rules for this discussion, okay? Right. So, it says I can exclude the greater of 10 million or 10 times my basis. So, I'm a founder, I invest 200 bucks, I take back my shares. Someday, when I sell my company, right? My basis is nothing. I sell for 10 million, I pay zero federal income tax. California got to pay Gavin Newsom. In New York, I pay zero fed, state, local, nothing. Right? So, it's hugely powerful that that per taxpayer exclusion.

10:02 1202 H4 says that if I gift QSBS to another taxpayer, that taxpayer steps into my shoes for the 5-year holding period, the original issuance requirement, everything else. So, when people talk about QSBS stacking, what they're really talking about is a way to multiply the $10 million buckets, right? So, in other words, let's say I'm going to go into a transaction and I've done no planning, I sell for 40 million. I start I'm a founder, right? I sell for 40 million. I can exclude my 10 million, but I pay tax on 30, right? I add 2.4, that's like 7 and 1/2 million bucks to the feds, right? On that 30 million. In contrast, let's say going into the transaction, I gift shares, 10 million to my son, and 10 million to my daughter, and then 10 million upstairs to my parents.

10:54 >> Yeah. >> There's a big gift tax ramification that we can talk about, right? That's going to But that's Let's leave that aside, right? But now I go into the transaction. I sell my 10, my daughter sells her 10, my son sells his 10, and then my mom sells her 10. Now, I've mitigated all federal income tax, zero. Right? Because 1202 H4 says that gift carries over all the QSBS attributes. >> All right. >> So, the statute is super clear that if I that I can multiply through gifting, right? Now, Treasury there there we have had no guidance on how 1202 H4 works. It did not There's no in fact there's very limited regulations under 1202 and now that it's such a powerful tool, it's surprising we haven't gotten more guidance.

11:43 For about 18 months there's been rumors that Treasury has proposed regulations to help interpret 1202 and just in the last couple of weeks it appears now Treasury is moving forward with and we thought that this these these proposed regs were going to drop under the Biden administration and would be very you know, anti-founder, anti-VC, right? Try to deal with carry, all these things. So now under the Trump administration Treasury saying we do have regulations that are going to come out and it's interesting that they appear to have focused just on this trust stack on the stacking question, right? Because I don't give like my daughter is 17 and my son is 15. I'm not going to give them 10 million bucks, right?

12:26 Normally what founders will do is set up a trust, a non-grantor trust, right? With guardrails on it to prevent my kids from just spendthrift spendthrift ruin you know, blowing all the money. So the typical structure is I'll set up a non-grantor trust for my daughter, she gets like in that non-grantor trust I transfer 10 million in there, we go through the sale to IBM or IPO or whatever, right? And then that trust gets 10 million, it's invested, right?

12:54 And then later in my life later in her life my daughter gets to take take distributions out of the non-grantor trust subject to its terms. >> Yeah. >> The issue is that some founders get a little aggressive. >> Right. >> That's Now let's say I'm going to sell for 10 million. Okay? So I get my 10, I do a trust non-grantor trust for my daughter, a non-grantor trust for my son, a non-grantor trust for my daughter and my son, a non-grantor trust for my mother, a non-grantor trust for my father, a non-grantor trust for my mother, father, son, and daughter. All of these have the same beneficiaries.

13:30 >> Right. >> Because if I'm at 10 million at 100 million, right? 10 buckets of 10. >> Yeah. >> Right? Now I'm trying to cover a lot. And what it appears that Treasury is saying is, "Hey, if you're setting up duplicative or overlapping trusts, that is not what 1202 H4 is all about." And for me, like all I do is think about QSBS. Like that's totally reasonable. >> Right. Right. Right. >> no duh. Like you can't >> Right. But but the the the the answer is they're not going to get rid of QSBS outright, cuz I think that's That is the rumor that I've heard from >> Right. And that I can tell you, that is like you like Treasury can issue whatever regs they want. The Treasury regs cannot conflict with the statute, which it is clear that you can do QSBS stacking.

14:15 >> Yeah. >> Right? >> They're they're clarifying the rule is what >> Yeah. And I think what they're going to try and do is say, "Hey, look, if you're being overly aggressive about QSBS stacking, we're going to come after you." Which any practitioner, right? Would similarly take that position, right? Like if my clients come to me and say, "I want to do 15 trusts and have them all overlap," I have real reservations about that. I'm not you know, like these guys are smart. The founders that we deal with, like you have super smart founders, I have super smart founders. They figure all this stuff out very fast, right? And they're they're founders. So their risk tolerance is basically >> [laughter] >> Now Now, what about trusts for unborn children?

14:56 >> Right. So I think there's an open question there. I My again, I'm I'm an income tax plan. I'm not a T&E guy. But my understanding is that trusts for unborn children don't you can't do that. It needs to be a live beneficiary. But there even there, it doesn't make any sense that someone would do that. Like if you Why not do a trust for your parents, like we see all the time, founders who don't have kids or who have an unborn like a child who's going to be born in the next 9 months, they'll go upstream to the parents, right? And then the the sort of grandchildren of the parents are the secondary beneficiaries. So, there's there's ways to solve for those questions that are not overly aggressive, right? Or take positions where you're saying, "Hey, the unborn child actually exists, gets a QSBS stack, right?" I think there's simpler solutions.

15:42 >> Yeah. Now, what what are the the rules around gifting? Like if if you have an pending public offering, if you if your company's filed an S-1, can you can you gift at that point in time? >> Yeah. Okay, so this there's there's kind of two concepts that's important here. One is an income tax issue and one is a gift tax. Let's first talk about the gift tax, right? Cuz that's everybody's always thinking, "Oh, I want to do as much QSBS stacking to to optimize for income tax." And then they forget about the gift tax, right? So, yeah, so my wife and I, we have $30 million of well, $30 million of lifetime estate and gift tax exemption.

16:17 >> Right. >> We can give away up to $30 million, and then after we've given away during our lifetimes $30 million, we got to pay 40% gift tax on every gift after that. >> Yeah. >> So, if I'm going to do QSBS stacking and set up a trust for my daughter and a trust for my son, those are gifts. And if I wait till right before the IPO, the value of my shares going to be pretty close to $10 million. Or what like there's a very it's unlikely to do a discount. So, that you know, the first important data point is, well, how much of your gift tax are you going to use up, right? To do this stacking. Cuz at some point, like let's say I try and set up eight trusts and move $80 million pre-IPO, like then I have a gift tax problem. I don't have a QSBS problem.

17:02 That one I have a gift tax problem, right? So, the first important question is, as you're going to that, the if you're going to do stacking, when are you doing it? The earlier you do it, right? If I do it after the Series A or the Series B, then the 409A is still pretty low. I'm going to have less gift tax implication. All right? Of course, that So, our advice is always like after a big A or after a big B round, that's when you need to do stacking.

17:28 Most of the founders we talk to, like, they don't even know about stacking at that point. Yeah. >> They don't have advisors at that point. >> Right. Right. Right. But, that's that's So, there's that First, there's the gift tax, okay? The second is this idea of assignment of income, which basically means once you know you're going to sell your company or your shares, you can't start gifting. I In other words, the IRS there's a series of old cases going back years that basically say if you know you're going to sell your shares, you can't once you know you're going to sell them, give them to somebody else to sell like at a lower tax rate or whatever else. All right?

18:07 So, let's say I'm going to go into a transaction and the the LOI gets signed, right? Or an IOLI, whatever, right? There, now you're starting to go down the path where the IRS And I immediately once the LOI signed, I set up four trusts, right? One for each of my kids and my parents or whatever, right? >> Yeah. >> There's a risk then that the IRS is going to come back and say, "No, you owe tax on all 50 million. The four trusts you set up plus yours because you assigned those after you knew that you were going to sell." Right?

18:37 At the LOI stage, there's still contingency, so I'm okay about trust I can make. But, like, let's say you have the final dot, right? Like, you're going to sign the whole final docs and 2 days before that you set up four trusts and do four transfers. >> Right. >> There, I'm very anxious that you have an assignment of income problem, right? That the IRS could come in if the IRS looked at that would say, "No, you basically knew you were going to sell.

19:02 The only reason you set up this non-grantor trusts was for tax purposes. There's no separate economic or financial justification apart from timing. >> Okay, so but but it but but that it's not a bright line and it kind of depends upon the facts and circumstance. And so, if a, you know, founder or other holder of QSBS eligible shares is in that situation, they should consult an advisor like you in order >> Yeah. >> And that's so you can do that, right?

19:34 Build out a team. That's what I say. Like, you got to get like I talk to founders all day long and basically all I do is say like call Chris Mays or call somebody, all right? Cuz like part of this for founders, and this is true like for this is like you got to have a good estate planner, right? Who can help you do stacking in a way that's thoughtful and good. You have to have a good CPA who understands QSBS, right? Like, the people who end up with problems, I can't tell you the number of kids that I deal with here in the Bay Area who are super nice kids and their uncle in Ohio, who's a super good CPA, is still preparing their returns. But he's never seen QSBS. And that guy's super good. I like him, right? And in the appropriate circumstance, I would send him W-2 work in Ohio. However, it's time to upgrade your CPA, right? To somebody that >> Yeah.

20:16 >> And then, you know, a good financial advisor at some point to help you map out what you're going to do with your future. And then, you know, people keep me around just to tell jokes. >> [laughter] >> Right, right, right. Okay, so so okay, so so but an S 1 is not is not over that bright line. So, the the you know, dozen to maybe two dozen uh companies that are right now are in kind of the the the likely candidates for going public over the next 18 months or so, they're they the the the the the the QSBS eligible holders of those companies could do some stacking right here.

20:55 >> For sure. Cuz it's really it's the sale date, right? For those guys who are going to go IPO, you still have plenty of time, right? The question is, when are you going to when do you know you're going to sell, right? There's going to be a lockup, everything else. So, now, the I think for somebody in that circumstance who's doing IPO with an S-1, their issue is that first that gift tax problem. >> Your tax, yeah, of course.

21:16 >> Yeah. So, yeah, so if the S-1 hasn't been filed, now, will it all like how does that for gift tax purposes how does it work? Like does it you know, is it is like is going to be last 409A or is it going to be an interpolation between the the the IPO price like >> You can't tell me, right? Like valuation is like this they're smoke and mirror like no, I I know a lot of I know a lot of appraisers who are awesome. But but I do it's it's a little bit like it's it's I don't know, right? Normally what we say is the 409A is a pretty good proxy for what your gift tax hit is going to be, right? But you know, you if you're going to do gifting significantly, you got to go out and get a formal gift tax valuation, right? Cuz you have to file when you make those hits you have to file a 709 with the IRS and say, "Here's my Here's my gift and here's the value." So, if you're going to do this QSBS stacking, it's it's really you have to be conscientious about it, right? And you have to be okay about giving it away, right? One of the issues going back to Treasury >> 100% >> You know, if I'm going to sell for 40 million and I like this happens all the time where we have a founder comes to me and says, "I'm going to sell for 40 million. I want to do trust for my son, my daughter, my wife, or my parents."

22:31 And and I'm like that is super efficient from a tax perspective, but that is a stupid idea. Fundamentally stupid cuz now you've given away three quarters of your wealth. In other words, like for QSBS stacking you want to set up the trust for my kids, that's not my money anymore. I can't go buy a fancy car or a fancy house. That's for them. And so, that's why it's a gift, right? And I think part of this concern that Treasury has is people are doing these gifts, but they aren't really gifts.

22:59 Right? And so, you know, it's important that if you're going to if you're going to try and do stacking the way 1202 H4 intended, you got to really give that away and be okay with that. >> Right. Right. Right. Okay, yeah, that's a good point cuz that has been a hang-up on a number of the clients that we worked with. >> Yeah. >> Hey, you know, switching gears here, what about 1045, the rollovers? Like explain what they are and how they work because that's kind of coming into vogue in the last 36 months or so, and we're starting to see some folks do that at scale. In In other words, you know, uh multiple tens of millions if not hundreds of millions um of 1045 rollover.

23:42 >> Yeah. Okay, so 1045 so 1202 is the exclusion provision, right? You say since you hold for 5 years, you can exclude 10 million, 10 years later it's now 50, right? 1045 is a deferral provision. >> Yeah. >> Which says if you hold QSBS just for 6 months and then sell and reinvest the proceeds within 60 days, your holding period keeps clicking along and the tax event is deferred. Right? So, assume I'm a founder, right? And I have a big Series B at year four.

24:11 >> Right. >> I do a secondary. I take 8 million bucks off the table at year four in a secondary. If I do nothing, I pay tax. But if, in contrast, I take that 8 million dollars and within 60 days reinvest in a whole bunch of other startups, right? Then I've deferred tax and I only have to hold those other startups for another year. If they kill it and I sell 2 years later, I've hit my 5 years.

24:38 And so 1045 is there a simple way to defer the tax and get more holding period. But what people don't realize is 1045 is also a stacking mechanism. Okay? So, if I go into a transaction and I sell for 40 million, I've done no no planning with my trust for my kids. >> [snorts] >> I sell for 40 million, I can go out I exclude my 10, right? I can go out and reinvest that 30 million in a whole bunch of other startups, right?

25:03 >> Right. Right. >> And remember, I get 10 million of each qualified trader business. So, I sold my startup, but I invest in all my buddies' startups. Once they sell, that's a separate bucket of 10 million, right? Now, query whether you want to take your 30 million and give it to your buddies. They're going to just go buy beer pong tables or whatever the guys do, right? So, you know, 1045 has risks as well. You can set up your next your own next startup, which is another opportunity, but that comes with risk as well. Do you have time, you know, if the guy's selling in series B and setting up their own next their next startup, that's bad because the VCs after series B are going to be breathing down their neck. So, you know, there are 1045 does unlock stacking opportunities when done done properly.

25:45 >> Yeah. Yeah. But on an exit, it you know, the the if you're if if you sell your business and you have no ongoing responsibilities for that business, like it it does create great way to it for >> For sure. And that's that's our job as advisors to say, "Here are all the options." This is why I love working in this space because all of these kids that we work kids, young people, whatever, right? They're super smart, and they chat GPT real time I do it, right? And they're chat GPT my advice against the LLMs, right? "Well, what about this?" And I love that. So, >> Yeah.

26:18 >> they figure it all like it's it's a very interesting question, right? Because these guys these guys will figure all all this stuff out. And and the goal here is for from an advisor standpoint, give good advice, but don't, you know, like don't encourage risky behavior, right? Think think about risk. >> Yeah. I we we've seen [snorts] some folks set up 10 10 million dollar companies defer 100 million dollars or more right these 1045 rollovers. Now, that's only been a phenomenon inside the last 36 months. I mean, prior to that, 1045 was kind of like the the very beginning, you know, kind of of QSBS.

26:57 Like, very few people did it up. And now it seems like a lot of people are doing these these rollovers. >> Yeah, and that makes me super nervous, right? If you roll over and you set up 10 new codes to shelter 10 million, 100 million, that makes me that makes me very anxious. And again, like these founders work 20 hours a day. I'm not saying they can't do it, right? >> Yeah. >> If you're going to set if you're going to do something like that, it's highly aggressive and you got to Each one of those In other words, each one of those rollovers needs to be a good qualified trade or business, active business, >> And it has to be QSBS eligible.

27:29 Even if you're funding all of your friends, >> Right. >> I mean, you're you're you're you're putting a hundred million dollar hundred million dollars at risk in QSBS eligible companies, which by definition are very early startups, right? Because you got to get still the fifty million dollar gross asset test. If you can just give us tell us a little bit about the qualifications for QSBS. Because we didn't go into the >> We didn't even go to So, right. So, remember that QSBS says the company needs to be a qualified trade or business, right? What that means you have got to get the shares from the company as less than fifty or now seventy-five million dollars of aggregate gross assets. But, what's more important is this 1202 E3 says the company has to be engaged in certain qualified trades or businesses, right? 1202 E3 says you can't be engaged in health, legal, accounting, financial services, banking.

28:15 Basically, every single fintech company ever heard of. >> So, we're we can't get QSBS. >> Exactly, right? You Chris Maze do not get QSBS, right? But, um what what what that what that 1202 E3 category is really going after is are you making something or you just providing a service, right? I just provide legal services, right? But, even in contrast, I build an app that says put in data, right? And it'll tell you you're good QSBS. That's legal tech, right?

28:43 >> Right. >> That's acceptable. So, you know, I I think we're always trying to negotiate this line between is it really just services or you're really building something? >> So, and then talk about the So, there's a 5-year So, so you've got this $50 million asset test. You got the 5-year hold period, which now is a phase in. Um and then it the business has to be organized as a C corp. Okay, here's one thing that you and I worked on recently. Like So, somebody organizes a business as an LLC.

29:18 >> Yep. >> And then they reorg it into a C corp and the value, you know, for instance, on on on one we did here recently that the value is $40 million. Tell tell us what happens in in that instance. >> So, this is the most This is the most popular technique out in right? Cuz all these guys are great They all think they're going to sell a billion dollar company. That's why they're founders, right? That they all think oh my this company's going to be a billion dollars. So, remember, we go back when we start say the the rule says you can exclude the greater of 10 million, now 15, or 10 times your basis.

29:48 Yes. And there's this little funny rule in 1202 1202 I that says if you contribute assets into a C corporation, we set your basis for purposes of that 10 times basis at fair market value. >> Right. >> And that means so Chris Mayze the Chris's you and I, we stand up an LLC and we roll out with accounting tech, right? >> Right. >> Mayze tech, right? And we're building this cool accounting tech. And then let's say when the LLC is worth 30 million No, let's say $50 million.

30:24 Right? Cuz now 75 it's got to come in at under 75. When it's at $50 million, we convert the LLC to a C corp. Technically, what happens when we do that conversion is we take all the assets out of the LLC and we contribute them into the C corp. So, it's an asset contribution. Then we test what is our basis in the C corp? All right, it's 50 million. 25 million each. We split it 50/50, right?

30:48 So, 50 million or 25 each. That means when we sell, we can exclude the greater of 15 or 10 * 25 million. That's $250 million of exclusion. So, that's crazy. That's crazy. Now, there's lots of drawbacks to do like people in Silicon Valley don't understand LLCs. You actually have to pick up the unrealized gain that first 25 million, but under the right circumstances, the LLC to C corp conversion can be hugely powerful and a big multiplier. Strong in certain circumstances, you can like it's better than stacking.

31:22 >> Yeah, no, 100%. Hey, you [music] know what? I know you got to go, so we're going to come back to this one. I think that's a perfect cliffhanger to cut cuz you're right. The VCs have not picked this up. [music] The SAFE agreements don't ever anticipate LLCs. And there is actually a real opportunity here that people have [music] under exploited, but anyways, I know you got to go to a call. Chris Christopher, it was great having you and look forward to our next conversation.

31:46 >> Love it. Okay, thanks, [music] Chris.