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This is clever. Who put the plan together? #4 seems like something the IRS would look on unfavorably. Also, before a 409a valuation wouldn't you just be better
by mrkurt 11y ago
This is clever. Who put the plan together? #4 seems like something the IRS would look on unfavorably. Also, before a 409a valuation wouldn't you just be better off granting the shares outright and having employees write a check for $20 or whatever?
- AndrewKemendo 11y agoOur lawyer put it all together. It used to be standard practice until a bunch of executives used it in the 80s to cheat the system. I should note that this plan cannot apply to executives, for that reason. Also, before a 409a valuation wouldn't you just be better off granting the shares outright and having employees write a check for $20 or whatever? Yes that's definitely easier, but if you have had a round of financing even before filing a 409a the "valuation" can be determined as far as the IRS in concerned.
- mahyarm 11y ago#4 is actually pretty clever. This way the employees are only taxed at the strike price of the grant as income vs. being taxed at the full value of the stock at the liquidity event. And all the profit from the liquidity event is taxed as long term capital gains. By being a loan vs. income, the stock given to the employee is not taxable until they actually sell. When the liquidity event happens, the tax from a forgiven loan is very miniscule compared the standard situation.