What is a Qualified Small Business Stock?
The IRS defines qualified small business stock (aka QSBS) per sec. 1202 of the Internal Revenue Code and IRS pub 550:
“(1) In general Except as otherwise provided in this section, the term “qualified small business stock'” means any stock in a C corporation which is originally issued after the date of the enactment of the Revenue Reconciliation Act of 1993, if – (A) as of the date of issuance, such corporation is a qualified small business, and (B) except as provided in subsections (f) and (h), such stock is acquired by the taxpayer at its original issue (directly or through an underwriter) – (i) in exchange for money or other property (not including stock), or (ii) as compensation for services provided to such corporation (other than services performed as an underwriter of such stock).”
(d) Qualified small business
For purposes of this section –
(1) In general, the term “qualified small business” means any domestic corporation which is a C corporation if –
(A) the aggregate gross assets of such corporation (or any predecessor thereof) at all times on or after the date of the enactment of the Revenue Reconciliation Act of 1993 and before the issuance did not exceed $50,000,000,
(B) the aggregate gross assets of such corporation immediately after the issuance (determined by taking into account amounts received in the issuance) do not exceed $50,000,000, and
(C) such corporation agrees to submit such reports to the Secretary and to shareholders as the Secretary may require to carry out the purposes of this section.
I.R.C. § 1202(b)(1) In General – If the taxpayer has eligible gain for the taxable year from 1 or more dispositions of stock issued by any corporation, the aggregate amount of such gain from dispositions of stock issued by such corporation which may be taken into account under subsection (a) for the taxable year shall not exceed the greater of —
I.R.C. § 1202(b)(1)(A) – $10,000,000 reduced by the aggregate amount of eligible gain taken into account by the taxpayer under subsection (a) for prior taxable years and attributable to dispositions of stock issued by such corporation, or
I.R.C. § 1202(b)(1)(B) – 10 times the aggregate adjusted bases of qualified small business stock issued by such corporation and disposed of by the taxpayer during the taxable year.
Source: IRS pub 550
In simple terms, it is basically stock in a C corporation issued after 1993 that has never had gross assets that exceed $50 million dollars.