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But who would manage this federal portfolio?

jerf 9y ago
Ah, the "beauty" of the US Federal tax system is that the answer is the same as everything else in the system: You. With You being liable for back interest and penalties if You screw it up. Basically the result would be an earmarking system, payable on exercise again, as opposed to time of receiving option. That said, in the broad scheme of things it still seems workable. Startups may have to get used to also providing assistance with taxes for their initial employees. Honestly that's already not a bad idea even in the current environment.
- huac 9y ago
  The US is an anomaly among developed countries for having a tax system that is so heavily individualistic. Plenty of other countries give tax-preparation duties to companies or the government, so individuals are mostly covered by blanket forms. The US doesn't do this because H&R Block and TurboTax would get put out of business. So there's no real reason that we couldn't have a more elegant and streamlined process, but you're right, we won't.
tome 9y ago
The IRS would just immediately liquidate the options on the open market. Oh, there is no liquid market! So if the IRS can't do it why should individual startup employees be required to do it? If the IRS are going to say that 100 options are worth $100x and charge tax based on that then they should be willing to accept 20 options in lieu of $20x.
- briandear 9y ago
  So much this! If they seize a boat for non tax payments, they can auction it; it would be interesting if there were a secondary market of buying shares in startups at an IRS auction. The fair market value of something is whatever you can sell it for, not what someone says it’s worth. Taxing something that can’t be converted to tangible value is just wrong. They are basically taxing potential and not reality. They are taxing the egg based on what the resulting chicken might be worth.
kelnos 9y ago
It's not like there's no precedent for this sort of thing. The Alaska Permanent Fund[0] is a fine example of a portfolio managed by a state-owned corporation that pays out to residents. [0] https://en.wikipedia.org/wiki/Alaska_Permanent_Fund https://en.wikipedia.org/wiki/Alaska_Permanent_Fund

jerf 9y ago

Ah, the "beauty" of the US Federal tax system is that the answer is the same as everything else in the system: You. With You being liable for back interest and penalties if You screw it up. Basically the result would be an earmarking system, payable on exercise again, as opposed to time of receiving option. That said, in the broad scheme of things it still seems workable. Startups may have to get used to also providing assistance with taxes for their initial employees. Honestly that's already not a bad idea even in the current environment.

huac 9y ago
The US is an anomaly among developed countries for having a tax system that is so heavily individualistic. Plenty of other countries give tax-preparation duties to companies or the government, so individuals are mostly covered by blanket forms. The US doesn't do this because H&R Block and TurboTax would get put out of business. So there's no real reason that we couldn't have a more elegant and streamlined process, but you're right, we won't.

tome 9y ago

The IRS would just immediately liquidate the options on the open market. Oh, there is no liquid market! So if the IRS can't do it why should individual startup employees be required to do it? If the IRS are going to say that 100 options are worth $100x and charge tax based on that then they should be willing to accept 20 options in lieu of $20x.

briandear 9y ago
So much this! If they seize a boat for non tax payments, they can auction it; it would be interesting if there were a secondary market of buying shares in startups at an IRS auction. The fair market value of something is whatever you can sell it for, not what someone says it’s worth. Taxing something that can’t be converted to tangible value is just wrong. They are basically taxing potential and not reality. They are taxing the egg based on what the resulting chicken might be worth.

kelnos 9y ago

It's not like there's no precedent for this sort of thing. The Alaska Permanent Fund[0] is a fine example of a portfolio managed by a state-owned corporation that pays out to residents. [0] https://en.wikipedia.org/wiki/Alaska_Permanent_Fund https://en.wikipedia.org/wiki/Alaska_Permanent_Fund