A.

Yes, an S corporation can hold §1202 stock; however, if converting an S corporation to a C corporation in order to start the clock running on the required five-year holding period, one has to be careful of the manner of conversion. Revoking an S election or contributing the S corporation stock to a newly formed C corporation does not do the trick. For instance, the S corporation can contribute its assets to a newly formed C corporation (or engage in a “corporate inversion” transaction) in exchange for newly issued qualifying C corporation stock and receive §1202-eligible stock. However, §1202 exclusion eligibility is limited to a shareholder’s ownership interest in the S corporation at the time the S corporate acquires the §1202 stock and cannot be increased.