The start of the calendar year is a time for companies to reconsider strategic objectives and opportunities for growth – including strategic tax structuring and optimization opportunities. The “One Big Beautiful Bill Act” (“OBBB”) (signed into law on July 4, 2025, but not taking full effect until January 1, 2026), together with recent reductions to the federal funds rate by the U.S. Federal Reserve, provide the backdrop and impetus for many of these opportunities. This article highlights key tax structuring considerations and opportunities that ought to be “top of mind” for companies in 2026, regardless of where a company sits in its lifecycle. 

Financing Transactions

In recent years, financing alternatives including unique forms of participating preferred stock, convertible debt, and simple agreements for further equity (i.e., SAFEs) have proliferated – particularly in the context of startups in high-growth industries such as technology and biopharmaceuticals where debt-financing is not available. These instruments present interesting U.S. federal income tax characterization considerations that can result in latent tax costs, which could impact transaction economics for both holders and issuers.

Preferred stock can result in deemed distributions that can be taxable as dividends to holders in certain instances, an especially problematic scenario for foreign holders subject to U.S. withholding tax up to 30%. With due care stock can be structured as “participating” to avoid being characterized as “preferred” for U.S. federal income tax purposes without meaningfully changing the economics envisioned by the parties.  

Convertible debt structures also present a plethora of tax characterization considerations, specifically where the debt is always anticipated to convert into equity upon a change of control or initial public offering (“IPO”) and where the issuer is never expected to repay the principal.

SAFEs are a relatively recent phenomenon allowing start-up companies to raise financing without incurring the costly accruing interest charged on convertible debt. The hallmark of a SAFE is that it does not require the parties to agree to a specific valuation at the time of the fundraising; but rather, the SAFE converts into equity upon a triggering event – usually at the time of next subsequent round of equity financing – based on the value ascribed to the company at the time of such event. SAFEs also present interesting U.S. tax characterization questions during the period they remain untriggered. Depending upon the features, SAFEs can be characterized as common or preferred stock, a derivative like a prepaid forward contract, or less likely, debt.

WM Specialty Tax regularly advises both issuers and investors on the tax characterization and downstream implications of these financing instruments.

IPO Readiness

A number of successful IPOs in the technology and digital assets spaces in 2025 may help reopen the IPO market in 2026. Tax considerations are often central to the decision to go public, particularly the requirement that the public investment vehicle be a corporation – causing companies operating in pass-through tax form (partnerships, S corporations, and some limited liability companies) to subject themselves to corporate level taxation. This decision is difficult to unwind, akin to checking into “Hotel California” – borrowing from the lyrics of the Eagles, “you can check in, but you can never leave” – once a company converts to a corporation, reversing that decision can be expensive and complex.

An uptick in IPO activity may also be driven by companies in the biopharmaceutical sector. Based on recent client experience, an increasing number of biopharmaceutical companies have redomiciled from Delaware to other non-U.S. jurisdictions. It is understood that the decision to redomicile is primarily driven by a more favorable regulatory climate and is also intended to attract non-U.S. investment. The decision to redomicile can give rise to significant tax consequences, including from an inversion perspective and from the U.S. double tax treaty perspective, particularly in the context of cross-collaboration agreements with pharmaceutical companies resident in other treaty partner jurisdictions.

WM Specialty Tax helps clients model the tax implications a particular legal entity structure and weigh the benefits and detriments of corporate versus partnership form. We also advise on hybrid alternatives that preserve pass-through taxation while allowing the company to access public markets, with founders retaining control of operations and the option to exchange flow-through partnership units for publicly traded stock at a later date to facilitate liquidity and/or exit.

Mergers and Acquisitions

Following recent reductions to the target range of the federal funds rate, M&A activity is expected to accelerate as lower borrowing costs can improve deal economics, particularly for “bolt-on” acquisitions.

Beyond pricing, tax structuring and due diligence are drivers of buyer returns and seller value. Buy-side tax due diligence allows buyers to identify and rectify tax risks before they become buyer-side exposures in post-acquisition years for which buyers are not indemnified. Buy-side structuring can enhance buyers’ go-forward tax profile by optimizing the use of tax attributes generated or acquired in connection with the transaction, including tax basis step-up resulting in enhanced tax depreciation and amortization, net operating losses and tax credit carryforwards, and interest deductions associated with deal financing – each attribute being subject to deal-specific limitations.

Sell-side tax structuring and due diligence can mitigate historical risks either through remediation or by verifying and documenting the technical merits for their historical tax positions. Sellers seeking to remediate prior positions may also be able to ringfence and then mitigate the magnitude of an exposure item through disclosure and self-reporting or by taking good faith corrective actions. Through deal structuring, sellers can also minimize tax exposure by monetizing tax attributes or structuring transactions in a tax-deferred manner with rollover equity.

Companies seeking to unlock shareholder value may also consider other tax-advantaged ways to do so. Multiple distinct businesses operating under one corporate roof may be devalued relative to the value that would be ascribed to each business if operated and valued separately. To borrow an idiom: “the sum [value] of the parts is greater than the whole.” These companies may consider an alternative to an outright sale: a spin-off of one business through a distribution to shareholders. Based on structure and if certain requirements are satisfied, a company may qualify for section 355, which permits a spin-off to occur on tax-free basis. Additionally, the operative provisions accompanying section 355 allow the distributing corporation to deleverage the retained business or otherwise monetize a portion of the controlled business in a tax-neutral manner, provided those funds are used to repay existing indebtedness, pay off corporate liabilities, or pay dividends to shareholders. One instance of a tax-free distribution under section 355 and a de-leveraging transaction is discussed here. 

WM Specialty Tax regularly advises buyers and sellers on tax diligence, structuring, and remediation strategies designed to preserve value and reduce post‑closing risk.

Qualified Small Business Stock

The expansion of the qualified small business stock (“QSBS”) exclusion under the OBBB is discussed in detail here. Most notably, the OBBB increased the amount of the QSBS exclusion, expanded the scope of the companies to which the exclusion applies, and shortened the duration of the holding period necessary to qualify. These enhancements ought to be priority consideration for both investors forming new businesses and shareholders considering the timing of a disposition of their business.  

In practice, a primary obstacle to QSBS eligibility is the lack of robust, contemporaneous documentation. We often see shareholders trying to prove eligibility five years post-issuance with incomplete records – a difficult, if not impossible, position. Because the “burden of proof” rests with the shareholder, but the necessary data is held by the company, there is a fundamental mismatch between interest and information. To address this, WM Specialty Tax assists companies with developing a centralized “QSBS Binder” to support shareholders’ reporting requirements.

 The key information in the QSBS Binder includes:

  • Gross Asset Certification demonstrating compliance with the $50 million / $75 million thresholds.
  • Original Issuance Records confirming stock was acquired directly from the company for money, property, or services.
  • Section 83(b) Elections (if applicable)
  • Active Business Proof documenting that at least 80% of assets were used in the active conduct of a qualified trade or business.
  • Working Capital tracking excess cash against operational needs.
  • Redemption History monitoring share repurchases that could potentially disqualify QSBS.
  • Additional information may also be required depending on the facts and nature of the business.

While some providers offer automated “QSBS attestation services,” the outputs are cursory, lack the nuance required for bespoke transactions, and frequently shift liability back to the company. For meaningful risk mitigation, it is best practice to obtain a formal tax opinion letter to protect the company from potential shareholder litigation should a QSBS claim be challenged by the IRS. WM Specialty Tax is here to assist with an assessment of your company’s QSBS status and to document qualification as necessary.

Conclusion

The start of 2026 presents a unique opportunity to reassess strategic objectives through a tax‑informed lens. The One Big Beautiful Bill Act, evolving capital markets, and a shifting interest rate environment have materially altered the tax considerations surrounding financing, public-market access, acquisition activity, and exit planning.

Regardless of where a company sits in its lifecycle, early and thoughtful tax planning can materially enhance outcomes and reduce friction. WM Specialty Tax partners with companies and investors at each stage to identify risks, unlock value, and implement practical, defensible tax strategies aligned with long‑term objectives.

This article is for general information only and does not constitute tax advice