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So either PayPal was earlier enough that you can make an argument that a "fair price" was $0.001 per share, OR you can make an argument that Thiel owned less th

So either PayPal was earlier enough that you can make an argument that a "fair price" was $0.001 per share, OR you can make an argument that Thiel owned less than 10% of the company at the time. Seeing as there were only 3 original founders at the time of Confinity incorporation, I highly doubt that Thiel had a <10% ownership. This is even more clear given that he (apparently) owned ~3.5% of PayPal in 2002, which is after the x.com acquision/merger, and raising ~$200M in VC funds. Either Thiel has a valid argument for claiming a fair price of $0.001/share, or he owned more than 10% of the company. You don't get it both ways.

vmception 5y ago
Correct, these are the accurate things to consider And also must be weighed against the consequences He very well could have paid the 100% penalty of $2000 that year and still kept the asset in the Roth IRA because the desired consequence was still so much greater and worth it. It was 1999 at the peak of that tech bubble There is also the possibility that the ownership % state changed so fast within the same year that you could look at the average % and wind up satisfying the condition with no penalty There is also the possibility that the IRS was asleep and lost their chance to levy a penalty by now All is possible
- nrmitchi 5y ago
  Allowing someone to make a prohibited transaction and then simply pay a 100% penalty after-the-fact, especially when the initial transaction was extremely-low-priced to begin with, is clearly open for abuse. What is to stop me from selling myself a couple houses into my IRA for $5 a piece, saying "whoops, I guess that was a prohibited transaction. I'll pay the 100% penalty of $5." That is why IRC Section 408(e)(2) stipulates that the IRA itself is fully “disqualified” – which means it loses its tax-deferred status, and is treated as though it was fully liquidated in a taxable distribution as of January 1st of the tax year in which the prohibited transaction occurred.
  - vmception 5y ago
    Disqualification notably only occurs with prohibited transactions between the owner/beneficiary. Not entities where the owner is a director, that can only incur a penalty. If the transaction isn’t unwound its a 100% penalty. Try this source or find a similar source that you respect: https://www.kitces.com/blog/self-directed-ira-prohibited-transaction-fiduciary-disqualified-person-irc-section-4975/#tax-consequences-and-penalties-for-engaging-in-a-selfdirected-ira-prohibited-transaction https://www.kitces.com/blog/self-directed-ira-prohibited-tra... The law itself doesn't make that very clear, thats how its been interpreted and acted upon Again, we are still starting from two different assumptions: I dont consider earning money to be abusive, I dont consider taking risks with your own private equity in a tax deferred account to be abusive. Its great that these accounts are allowed to take risks.

vmception 5y ago

Correct, these are the accurate things to consider And also must be weighed against the consequences He very well could have paid the 100% penalty of $2000 that year and still kept the asset in the Roth IRA because the desired consequence was still so much greater and worth it. It was 1999 at the peak of that tech bubble There is also the possibility that the ownership % state changed so fast within the same year that you could look at the average % and wind up satisfying the condition with no penalty There is also the possibility that the IRS was asleep and lost their chance to levy a penalty by now All is possible

nrmitchi 5y ago
Allowing someone to make a prohibited transaction and then simply pay a 100% penalty after-the-fact, especially when the initial transaction was extremely-low-priced to begin with, is clearly open for abuse. What is to stop me from selling myself a couple houses into my IRA for $5 a piece, saying "whoops, I guess that was a prohibited transaction. I'll pay the 100% penalty of $5." That is why IRC Section 408(e)(2) stipulates that the IRA itself is fully “disqualified” – which means it loses its tax-deferred status, and is treated as though it was fully liquidated in a taxable distribution as of January 1st of the tax year in which the prohibited transaction occurred.
- vmception 5y ago
  Disqualification notably only occurs with prohibited transactions between the owner/beneficiary. Not entities where the owner is a director, that can only incur a penalty. If the transaction isn’t unwound its a 100% penalty. Try this source or find a similar source that you respect: https://www.kitces.com/blog/self-directed-ira-prohibited-transaction-fiduciary-disqualified-person-irc-section-4975/#tax-consequences-and-penalties-for-engaging-in-a-selfdirected-ira-prohibited-transaction https://www.kitces.com/blog/self-directed-ira-prohibited-tra... The law itself doesn't make that very clear, thats how its been interpreted and acted upon Again, we are still starting from two different assumptions: I dont consider earning money to be abusive, I dont consider taking risks with your own private equity in a tax deferred account to be abusive. Its great that these accounts are allowed to take risks.