Jonathan Kamens <jik[at]kamens.brookline.ma.us> wrote:

- quote -

You do, and the IRS gets to disagree with you if they want.

- quote -

Yes, it's _supposed to_.

- quote -

Those factors are _supposed_ to be taken into account when
calculating the current strike price for new options.

Seth

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"Jonathan Kamens" <jik[at]kamens.brookline.ma.us> wrote:
- quote -

A good practice is to hire a CPA with advanced business
valuation expertise.

- quote -

I'll agree with that.

- quote -

How does this lawyer know what was and wasn't done for the
strike price?

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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jik[at]kamens.brookline.ma.us (Jonathan Kamens) wrote:
- quote -

I have a question - since I don't know anything about ISO?
If you pay the tax on the calculated FMV, and then sell your
shares later for a lower price, do you get to claim a loss?

--
Vic Roberts
Replace xxx with vdr in e-mail address.

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"David Woods, EA, ChFC, CLU" <dwoods[at]woods-financial.com> writes:

- quote -

But who determines what the FMV of an ISO share for a
private company is at the time you exercise it?

I'm arguing that the FMV is the current strike price of
other ISOs being issued by the company, because by
definition the strike price of an ISO share is supposed to
represent its current FMV. The lawyer I had the
conversation with is arguing that the current strike price
doesn't represent FMV and can be further discounted using
what she believes are recognized, accepted guidelines for
calculating FMV in non-public shares. Is there any truth to
that?

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"Jonathan Kamens" <jik[at]kamens.brookline.ma.us> wrote:

- quote -

The point of the AMT preference is that you HAVE the FMV.
As you point out, any discount should be taken into account
when you DETERMINE the FMV. Not AFTER FMV.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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Back when my employer went public during the boom, I got
killed by AMT because I exercised shortly before the IPO,
when the FMV of my options was way, way higher than their
strike price. I wanted to hold the shares, so I had to pay
AMT on the spread.

I never want that to happen again, so when I'm working for
an employer who gives me ISOs, I try to keep my ear to the
ground to catch a hint of when the strike price is going to
start to climb in anticipation of an IPO, so that I can
exercise early in that curve (I don't want to exercise as
soon as the shares vest because I don't have the spare cash
lying around).

I recently had a conversation with a lawyer who claimed that
even if I were to exercise the shares when the current
strike price was much higher, I should be able to "discount"
the values of the exercised shares to avoid some or all of
the AMT. Her argument was that there are various
characteristics of the shares which make them worse less
than the FMV suggested by the strike price of shares
currently being issued by the company. For example, the
company is still private so I can't sell the shares, I may
be subject as an employee to lock-outs preventing me from
selling shares for a while after the IPO; etc. She said
that a "creative" accountant could come up with various
discounts to apply to the FMV to bring the spread way down.

This sounds fishy to me. I thought that the current strike
price of ISO shares is supposed to reflect all of those
discounts already, which is why the SEC lets a company get
away with some spread between ISO strike price and IPO
opening price right up until the day of the IPO. The
lawyer's suggestion sounded to me like the kind of creative
accounting that the IRS wouldn't necessarily look kindly
upon, and I wouldn't feel to comfortable about it either.

Who's right here? Any thoughts?

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