- quote -

Again the caveat is that I would have to research this in
order to give you an answer you could rely on and with that
being said - I believe it IS income that should go on your
W-2. I believe the proper way to handle this would be for
the investors to contribute the money to the company so the
company can pay you. However, let's assume from your post
and follow up that it will NOT be put on your W-2 (and let's
ignore the likelihood that it should be on the W-2) in which
case I think it should still be reported as wages on Line 7
of your income tax return and you should pay your share of
FICA on it. You can do this by attaching Form 4137 which is
normally used to report tip income. It is technically
incorrect since you are not receiving tips, but it does
accurately reflect your share of the liability on the money
and since those paying you will not be reporting it
correctly. You should be aware that handling it in this
manner could very likely cause the IRS to contact the
company asking for an explanation of why they reported, or
failed to report, it properly. This could cause payroll
problems for the company, but frankly if they are refusing
to report correctly and you are leaving it may not matter to
you.

As I said before, the intricacies of your situation will be
best served by arranging for a consultation with tax
professional, providing all of the requisite background, and
letting a professional do the necessary research to give you
a good, reliable answer. The best you will get from me or
anyone else in this forum, is a SWAG based on the limited
information exchanged. You should also keep in mind that
there will be some time commitment involved to research and
support a good answer and that will cost you a few dollars.
FWIW - my billing rate is $150 per hour and I would expect I
could get you a supportable opinion in approximately 2 hours
or so.

Asking for free advice and guidance is what this forum is
about. However, you should keep in mind that the
information you receive on this forum is worth exactly what
you paid for it. You cannot - and should not - rely only on
what is posted here. Someone, either you or your tax pro,
should check the resources directly to make sure your fact
pattern fits with any advice given. Frequently - more often
that not - specific information that impacts advice is
overlooked here because the posters don't realize the level
of detail needed AND because the responses in this forum are
done voluntarily and freely. What I'm telling you I'm
telling you in good faith, but I have not done the research
and won't until I'm retained.

Good luck,
Gene E. Utterback, EA

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Gene:

Thanks for the post.....Questions and comments below....

"Gene E. Utterback, EA" <eagent[at]alliancetax.com> wrote:
- quote -

I do understand exactly what you are saying and understand the
inherent risks.
Let's assume for the sake of this post that I am willing to take the
risk.
- quote -

I see what you mean about having to call the payout
"income". So I guess my question is what kind of "income"
would I claim? It is not W-2 income, as the payment would
come directly from the private investors in the company and
not either the "old" or "new" corporations. It seems like I
should claim it as some kind of 1099 income, like a
consutling arrangement, and consider taking possible
write-offs for deduction purposes. What are the up and
downsides to this strategy? (Like would I be subject to my
own personal FICA withholding of 15.3%?) Are there other
strategies I should consider?

- quote -

I think I follow....If I receive stock in lieu of
income...Let's say stock worth $50K...and I turn around and
sell it back to the investors for $50K....I have no capital
gain (or loss). What I do have is a payment from the
investors to me of $50K in stock and then a stock
transaction that has no gain or loss....Right?

- quote -

I think I follow this one as well - but am pretty sure this
does not come into play. This would assume I would receive
the stock with a very low basis (say $1) and that it would
be instantly worth $50K. I'd be subject to a gain in the AMT
system. (This, however, is not going to be the case in my
situation.)

- quote -

Completely get this one....Again, along with point #1, let's
assume I am willing to risk it...

- quote -

In summary, I think what you are saying is that there is no
realistic way to claim a large capital gain (at least for
now) and that I should view this as income.

So my question now is related to your point #2 - What kind
of strategy seems to be best seeing that this income will
NOT show up on any W-2 but will simply be a payment from
private investors?

Thanks for your guidance.

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"sinc720d" <sinc720d[at]bellsouth.net> wrote:

- quote -

I have some problems with your post:

First - keep in mind that stock in any privately held
company may not be easily tradable on the open market.
Hence, the value of the stock they are offering you may be
nothing more than smoke and mirrors if there are no willing
buyers should you decide to sell it.

Second - if you get the stock in consideration for something
of value related to your employment, it may be wages whether
they want to call it that or not and regardless of who
actually hands you the money (or stock). I'd have to get
more details and do some research, but the basic theory goes
like this - if you don't have to actually do anything to get
a $50K bonus, please have them send ME a $50K bonus right
away!

Third - I don't see how you could have any gain at all from
the sale of this stock, much less any tax free gain,
especially if you get it and sell it in the same year. Your
basis in the stock should be the stock's value when you get
it, hence when you sell it there shouldn't be much gain.

Fourth - if there is any disparity between your basis in the
stock and the full FMV at the time you receive it, you may
have an AMT issue for any built in gain when you get it.

Fifth - I'd be real cautious about "preferred" stock in a
privately held company. Preferred stockholders seldom have
any voting rights and unless the stock has cumulative
participating powers you may not even be entitled to
dividends if they company accountant knows what he's doing.

In short, I think you need to spend a few bucks and meet
with a professional well versed in this area of taxation
before you find yourself short money and stock.

Good luck,
Gene E. Utterback, EA

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->

I am an executive with my current company and they are about
to be sold to another firm. In order to ensure a smooth
sale and transition, I am being offered a bonus/severance
payment from the investors in my company. (Note: The bonus
will come directly from the investors, NOT from either my
current company nor from the "new" company, so it will not
show up as W-2 income.)

Personally, I have a large capital loss outstanding for
write-off purposes that would more than cover the amount of
the "bonus".

I am being offered to choose either:

a) cash
or
b) preferred stock in the "new", privately-held company.

Assuming for one second that the value of the cash vs stock
is a wash (and, yes, I understand it is not), what would be
the best thing to do TAX-WISE to do? (Obviously, the
thought of taking the "bonus" as a tax free capital gain
(due to my large capital loss) is most appealing!)

If I cannot do this, is it wise to claim the "bonus" as 1099
income and try and get some kind of business write-offs?
(Again, it is not being paid by the company and is not
subject to witholding.)

Finally, what would happen if I decided to take 50% cash and
50% stock.

Thanks for your advice!!!

<< -------------------------------------------------> << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org > << ------------------------------------------------->