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Doesn't the IRS need some algorithm to determine the fair market value of your shares? I see two different possible answers to this question: - The IRS doesn'
by csense 13y ago
Doesn't the IRS need some algorithm to determine the fair market value of your shares? I see two different possible answers to this question:
- The IRS doesn't use such an algorithm. In this case, how can an IRS audit overcome the "there's no evidence we acted incorrectly, the IRS is just picking on us" defense? If there's no objective standard, how can the IRS ever figure out if anyone's valuation's too low?
- The IRS does use such an algorithm. In this case, what's preventing companies that issue the shares from just using the same algorithm the IRS uses?
- phillmv 13y agoWell, they do have an algorithm. That's why this service works. Unless you were selected at random, no one reads the paperwork you submit until someone thinks you've done something wrong. They're just evidence that will be examined in the future, so it needs to check out. For one accounting is fiendishly complex but I would also bet that there is some tiny, irreducible step you need a human being to glance at the paperwork and say "it doesn't look like they're trying to scam us".
- danieltillett 13y agoThey do - they basically all use the Black-Scholes Model [0] and just plug in the numbers. I assume most of the cost of these 409a's is for the backside covering aspect - if the IRS says how did your come up with your pricing you can point them in the direction of someone "serious" and blame them if they typed in the wrong numbers. [0] http://en.wikipedia.org/wiki/Black–Scholes_model http://en.wikipedia.org/wiki/Black–Scholes_model