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Nothing stops them from selling you back their share at close to zero if they really want to right it off.

by vasco 2y ago

deleted 2y ago
[deleted]
immibis 2y ago
They might have to prove to the IRS the share was actually worth that. Whereas if the business is bankrupt, it's obvious.
- orionsbelt 2y ago
  No - that’s true if you are trying to determine if you can write it off, but if you actually sell it back for $1, you can take the loss.
  - booi 2y ago
    Not if the fair market value can be proven otherwise. It’s just fraud
    - jjmarr 2y ago
      It's not inherently fraudulent to sell something for below market value. If I sell something I bought for $1 million for $1 in an arm's length transaction, I'm realizing a loss of $999,999 even if the asset was worth $500,000. And it'd be a rational decision if it cost me $5 million in opportunity costs to do that $500k sale.
      - nradov 2y ago
        That's not how US capital gains tax law works. It's legal to sell something at below market value, but you have to use the fair market value when calculating a loss for tax purposes. Of course some people cheat.
        tonygiorgio 2y ago
        Should be easy to determine when a 409a evaluation was done.
        jjmarr 2y ago
        I'm reading the IRS website and it says: https://www.irs.gov/taxtopics/tc409 https://www.irs.gov/taxtopics/tc409 > When you sell a capital asset, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss. Am I misinterpreting this?
- bliteben 2y ago
  how many vc investors are in the class of people that get audited by the IRS?
  - WillPostForFood 2y ago
    If VC investors have high income, they are the class of people that get audited the most. By a lot, like 25x more likely than someone with median income. https://www.nolo.com/legal-encyclopedia/irs-tax-audits-triggers.html https://www.nolo.com/legal-encyclopedia/irs-tax-audits-trigg...
paulsutter 2y ago
That does happen, but not for taxes. They do it to close out the fund which has (usually) a ten year life.

Nothing stops them from selling you back their share at close to zero if they really want to right it off.

by vasco 2y ago

Nothing stops them from selling you back their share at close to zero if they really want to right it off.

deleted 2y ago

[deleted]

immibis 2y ago

They might have to prove to the IRS the share was actually worth that. Whereas if the business is bankrupt, it's obvious.

orionsbelt 2y ago
No - that’s true if you are trying to determine if you can write it off, but if you actually sell it back for $1, you can take the loss.
- booi 2y ago
  Not if the fair market value can be proven otherwise. It’s just fraud
  - jjmarr 2y ago
    It's not inherently fraudulent to sell something for below market value. If I sell something I bought for $1 million for $1 in an arm's length transaction, I'm realizing a loss of $999,999 even if the asset was worth $500,000. And it'd be a rational decision if it cost me $5 million in opportunity costs to do that $500k sale.
    - nradov 2y ago
      That's not how US capital gains tax law works. It's legal to sell something at below market value, but you have to use the fair market value when calculating a loss for tax purposes. Of course some people cheat.
      - tonygiorgio 2y ago
        Should be easy to determine when a 409a evaluation was done.
      - jjmarr 2y ago
        I'm reading the IRS website and it says: https://www.irs.gov/taxtopics/tc409 https://www.irs.gov/taxtopics/tc409 > When you sell a capital asset, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss. Am I misinterpreting this?
bliteben 2y ago
how many vc investors are in the class of people that get audited by the IRS?
- WillPostForFood 2y ago
  If VC investors have high income, they are the class of people that get audited the most. By a lot, like 25x more likely than someone with median income. https://www.nolo.com/legal-encyclopedia/irs-tax-audits-triggers.html https://www.nolo.com/legal-encyclopedia/irs-tax-audits-trigg...

paulsutter 2y ago

That does happen, but not for taxes. They do it to close out the fund which has (usually) a ten year life.