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IRS is a revenue collecting body, not a VC firm. Why would they want to take undue risk? I see the following reasons (atleast), the proposed solution is a no-g

IRS is a revenue collecting body, not a VC firm. Why would they want to take undue risk? I see the following reasons (atleast), the proposed solution is a no-go. a. 17.5% cash >> 17.5% shares of a business, which is struggling to pay 17.5% cash. b. what happens if the business goes under and IRS owns 100% shares of the business? c. What happens if all IRS get in payment is shares. How the country economy is supposed to run? (with foreign trade etc.)

kjksf 15y ago
Forcing the risk on IRS is exactly the point. The idea is to force them to value things in a (more) rational way. Today, they don't have to. Their incentive is exactly the opposite: overvalue things to get more tax out of it. I think we can all agree the best thing is to take away ability to tax phantom money from IRS. Next best thing is to setup the rules so that IRS is on the hook if they overvalue phantom money.
yummyfajitas 15y ago
17.5% cash >> 17.5% shares of a business, which is struggling to pay 17.5% cash. If 17.5% of a business is worth less than $1.75M then 100% of the business is worth less than $10M. Thus the tax bill should be lower than $1.75M. what happens if the business goes under and IRS owns 100% shares of the business? Then the IRS's initial valuation of $10M was inaccurate. Why should the business owner pay for mistakes made by the IRS?
- random42 15y ago
  If 17.5% of a business is worth less than $1.75M then 100% of the business is worth less than $10M. Thus the tax bill should be lower than $1.75M. No, The point I was trying to make was that shares of a struggling business is always less in value (due to inherit risk), as compared to hard cash (Which is equal, irrespective of its genesis.) Then the IRS's initial valuation of $10M was inaccurate. Why should the business owner pay for mistakes made by the IRS? No reason. Similarly IRS has no reason to take the investment risks (as its interested in collecting revenues, not funding companies). I just gave a potential risk of scenario, where the business is unable to pay to the IRS money (due to lack of enough cashflow in the business), but still getaway with it. (When it eventually does get bust, but at the cost of IRS/government/Taxpayers, not the owners.)
  - yummyfajitas 15y ago
    The point you are making is that the IRS's assessed value is higher than the value of the business. I.e., the IRS is charging the business owner taxes on $10MM even though they don't really believe his business is worth $10MM. You gave a potential risk scenario where the IRS declares a company is worth a lot, but in reality it is worth very little. You then advocated that a taxpayer (the business owner) should suffer for this mistake by paying cash (some percentage of an incorrect valuation) instead of equity. But that's silly - if the business is about to go belly up (i.e., it's really worthless), the taxpayer should owe very little in tax. Forcing the IRS to take equity is a self enforcing way to prevent the IRS from overtaxing people.

kjksf 15y ago

Forcing the risk on IRS is exactly the point. The idea is to force them to value things in a (more) rational way. Today, they don't have to. Their incentive is exactly the opposite: overvalue things to get more tax out of it. I think we can all agree the best thing is to take away ability to tax phantom money from IRS. Next best thing is to setup the rules so that IRS is on the hook if they overvalue phantom money.

yummyfajitas 15y ago

17.5% cash >> 17.5% shares of a business, which is struggling to pay 17.5% cash. If 17.5% of a business is worth less than $1.75M then 100% of the business is worth less than $10M. Thus the tax bill should be lower than $1.75M. what happens if the business goes under and IRS owns 100% shares of the business? Then the IRS's initial valuation of $10M was inaccurate. Why should the business owner pay for mistakes made by the IRS?

random42 15y ago
If 17.5% of a business is worth less than $1.75M then 100% of the business is worth less than $10M. Thus the tax bill should be lower than $1.75M. No, The point I was trying to make was that shares of a struggling business is always less in value (due to inherit risk), as compared to hard cash (Which is equal, irrespective of its genesis.) Then the IRS's initial valuation of $10M was inaccurate. Why should the business owner pay for mistakes made by the IRS? No reason. Similarly IRS has no reason to take the investment risks (as its interested in collecting revenues, not funding companies). I just gave a potential risk of scenario, where the business is unable to pay to the IRS money (due to lack of enough cashflow in the business), but still getaway with it. (When it eventually does get bust, but at the cost of IRS/government/Taxpayers, not the owners.)
- yummyfajitas 15y ago
  The point you are making is that the IRS's assessed value is higher than the value of the business. I.e., the IRS is charging the business owner taxes on $10MM even though they don't really believe his business is worth $10MM. You gave a potential risk scenario where the IRS declares a company is worth a lot, but in reality it is worth very little. You then advocated that a taxpayer (the business owner) should suffer for this mistake by paying cash (some percentage of an incorrect valuation) instead of equity. But that's silly - if the business is about to go belly up (i.e., it's really worthless), the taxpayer should owe very little in tax. Forcing the IRS to take equity is a self enforcing way to prevent the IRS from overtaxing people.