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Super difficult situation with many second and third order effects to sort out, one particularly relevant to HN .. Vested equity that isn't liquid. It is techn
by bretpiatt 7y ago
Super difficult situation with many second and third order effects to sort out, one particularly relevant to HN ..
Vested equity that isn't liquid. It is technically an asset with a clear value (based off of a 409a, last round valuation, or from limited trading on private secondary markets). So founders must sell 2% each year to cover their tax bill, except that sale triggers other taxes so likely more in the 4-6% per year...
Does a VC fund have to send a statement through to LPs each year so they pay a tax bill on indirect holdings?
I could go on and on...
- btown 7y agoFor founders, an 83(b) like election should cover that case, if your funds have never been liquid. But yea, this is tough. If you close all loopholes, it almost starts to look like a VAT on private investments per vehicle, which would disincentivize growth in so many ways.
- bretpiatt 7y agoBeing able to use 83(b) valuation would imply tax on book value which is not really an accurate measure of the value and would favor a whole set of structures and increase the amortization / accelerated depreciation / write-down of assets. Our current tax code, similar to a representative democracy , isn't good, it just may be the least bad of all the options out there.