In article <94854e84-2d41-41a9-95b4-9fb0e0280610[at]p25g2000hsf.googlegroups.com> ,
<melissamcfaden[at]yahoo.com> wrote:

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You can't. Nobody can make such a guarantee (and perform).

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You might get a banker to value the company. Or find out if that's
already been done.

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Well, if you sell the stock, that establishes FMV.

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Yes: in effect, you'd be saying "They paid me $X, and I used the $X to
buy stock." So the amount you claim as income is your basis for the
stock.

Seth

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In article <419504ef-7d02-4b25-9ca9-3cc14a9b4c1b[at]x30g2000hsd.googlegroups.com> ,
<melissamcfaden[at]yahoo.com> wrote:

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How much stock did he get for how much investment? That would seem
like a defensible value.

Seth

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In article <62294a74-032d-49b2-829c-74468ee2c4b3[at]e10g2000prf.googlegroups.com> ,
removeps-groups[at]yahoo.com <removeps-groups[at]yahoo.com> wrote:

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Or two years later the company folds at $0 a share. That's a lot more
common.

Seth

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Stuart Bronstein wrote:
- quote -

believe one is going to be able to find a readily available US
CPA with the skill level and time to perform an independent
appraisal that would conform to the proposed regulations under
Sec 409A and SFAS 123R.

The best bet is to stick to German sources for information.

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Fred Williams <fred.williamss[at]yahoo.com> wrote:
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His education and training will allow him to come up with a factual
basis to base his opinion on. And if it is rational and reasonable the
chances are the IRS will go along with it.

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No doubt. But if it's worth a million dollars in a few years, do you
want the IRS coming back then and claiming it was worth a lot more now?
They're more likely to do that if you don't have a valuation they
consider credible.

Stu

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On Feb 29, 3:36 pm, Stuart Bronstein <spamt...[at]lexregia.com> wrote:
- quote -

So what is an accountant going to do diiferently if there is not a
market to buy this foreign stock?
The instances I have seen similar to this in small private companies
where someone exchanges their time for stock results in no income --
90% of these situations result in the company never being able to sell
additional shares and eventually going out of business. value of
shares received = zero or something very small.

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melissamcfaden[at]yahoo.com wrote:
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That is one way to estimate the value of the stock received, yes.

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That's another way to measure the value. Too bad you didn't talk to
a professional before you got into this. I would have suggested
paying a nominal amount for the stock, based on the company's asset
value at the time. That would have avoided this problem now.

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What about the principals? What did they contribute on a per share
basis?

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The question of value comes down to, what would a willing buyer pay
for the stock? You've indicated that there's an investor - what he
paid was market value at that time, by definition.

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No one can guarantee what you want. But many accountants are trained
in appraising companies, and you want someone like that. If the IRS
does ever challenge you, the accountant will have to show that his
valuation was reasonable.

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Actually, no. The IRS, and a court if necessary, will want to see
objective evidence of value. That means, among other things, a list
of assets of the company, a list of accounts receivable and payable,
and comparisons to other companies in the same or a similar business.
Your own normal billing rate and the number of hours you work for
your stock will also be relevant.

- quote -

Find a good accountant who can properly value your stock.

Stu

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On Feb 29, 12:26 pm, an_ordinary_guy_...[at]hotmail.com (Bill) wrote:
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Yes, you are correct.

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My business started not long before I entered into agreement with that
German startup, so I do not have an established "normal charge" (yet).


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Indeed, one month after I entered the company (and received my share
of *minority* stocks), a private investor paid $50,000 in exchange for
10% of the that startup. Does that establish the FMV of *my* stocks?

If so, bear in mind that the main negotiation point for getting that
$50K from that investor was my entry into the startup... In other
words, before I entered into the company, its valuation (in the eyes
of whoever they attempted to get money from) was much lower.

In fact, even now, after I invested significant amount of work and
time into that startup, it is worthless without me continuing the work
for at least one more year.

Does that call for a mess that no one can figure out or what?

I think that I need to pay a professional that can guarantee that the
IRS will not challenge my tax filing, but where and how do I find
someone like this? I believe that a "CPA only" is not enough here and
neither a "Lawyer only", nor an "Analyst only". Is there such a
professional who is both CPA, lawyer *and* analyst?

What am I to do? The IRS scares the hell out of me.


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I do operate my business on a cash basis, but that doesn't mean that I
can declare any FMV I want of those stocks, right?


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Your thoughts are very useful and helpful. Had I known how much
trouble this would entail, I would have not agreed to such form of
"payment". Too late now. I need to find the least expensive way to get
out of this.

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Is it *that* simple? On one hand, I read (in this newsgroup and
elsewhere) all kinds of things that scare the hell out of me. On the
other hand you say (and I know that what you wrote is not binding in
any way) that I am "the sole determinant". I am confused. What am I to
do?

Thanks,
Melissa

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melissamcfaden[at]yahoo.com wrote:
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The amount declared as compensation becomes your cost basis for
future capital gains.

Re your other questions..... I still advise you to contact other
employees and/or the company CFO. In addition, there is a German
equivalent to our FASB. As you may guess, it is called GASB
(German Accounting Standards Board). You may want to contact
them to find out what obligations a start-up has when they
compensate employees with stock.
http://www.standardsetter.de/drsc/orga_gasb_eng.html

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On Feb 29, 12:18 pm, Alan <sfcnm-...[at]yahoo.com> wrote:
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I am almost certain that that German startup did not follow such
rules... but I will check. BTW, that startup didn't sell anything
yet... zilch. Only small investments from private persons.

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You are describing an amazingly similar situation to mine. I am
between a rock and hard place here (I wish I knew better when I signed
that contract with them): On one hand, that German company was pretty
sloppy in their practices (very atypical in that region I would say).
On the other hand, if I declare any value that I wish, I will get in
trouble with the IRS.

What is my best course of action?

- quote -

I read elsewhere that "IRS challenges to valuations tend to be
resolved in courts by the "battle of the credentials"-- so a key issue
is to get someone with excellent credentials to value the shares."

My questions is: How and where do I find "someone with excellent
credentials" that can value the shares in time for my tax preparation?
Any ballpark figures for how much said professional charges?

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I like the idea of one penny a share. The question is whether the IRS
will like it, too. Of course, in due time I will have to pay tax on
any gains on these stocks, but then there will be money with which I
can pay...

My question now is: those gains, will they be taxed at a capital gain
rate (most likely LONG TERM because I can't foresee in the near future
any way to sell them)? Or will they be taxed at the regular type of
income rate?


- quote -

Please delete all unnecessary parts of a prior post when responding.

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On Feb 29, 9:26 am, an_ordinary_guy_...[at]hotmail.com (Bill) wrote:

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But there was no cash income. Are you saying that if she normally
works at $50 a hour and worked 100 hours, then the FMV of the stocks
is $5,000; and if she got 1000 shares, then each is worth $5. That's
too drastic in my opinion. The whole point of working for stock is to
get lots of shares for practically nothing, so that if the company
goes public one day, you can make a zillion.

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On Feb 29, 9:18 am, Alan <sfcnm-...[at]yahoo.com> wrote:
- quote -

Shouldn't she contact the company first? Probably Germany has an
equivalent of IRS section 409A, so the company can say what the shares
are worth (maybe par value of 0.01 EUR for a small company).

I agree the the value of small companies may be underestimated.
Employees at startups get shares are 1 cents, 5 cents, 10 cents are
share -- and three years later the company goes public at $30 a share.

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melissamcfaden[at]yahoo.com posted:

- quote -

For clarification, am I correct in assuming your "services" were
provided in pursuit of a business you operate?

If that is correct, you presumably would have a normal charge which you
would assess to a cash-paying customer. And that "normal" charge would
have been accrued as at least a contingent earning for your business.
That figure should be considered a starting point for establishing the
"FMV" of the securities you accepted in return for your services.

In other words, you personally are the "Fair Market" for that stock --
and apparently the only one, at the present. That would give you a
basis figure for the point at which the stock was delivered to you.

Now, if you're operating your business on a cash basis, you and your
accountant will have to work out what income you declare for 2007 -- and
fairly soon -- for this particular service. Whatever that amount
becomes, would seem to be the FMV for the securities.

This is simply a logic problem, IMO, for the rather unique circumstance
you face. It is possible that this compensation may be deemed
_worthless_ (though you didn't provide it with charitable intent) ... in
which case you will declare no income from that source in 2007. That
would determine the stock's basis as -0- for some future occasion when
you are able to sell it. That will satisfy the IRS, I believe, if you
decide on that approach.

Hope these thoughts are useful.

- quote -

This second question only arises if you have need to prove your cost
basis. As stated above, you're the sole determinant ... so you could
simply write a "memo to file" of your valuation, and that will of course
be supported by your own business books. In other words, whatever you
claimed in 2007 as income for the services, will become the basis.

Bill

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melissamcfaden[at]yahoo.com wrote:
- quote -

private company is obligated to determine the FMV of stock grants
and stock options because of FASB pronouncement SFAS 123R and
Section 409A of the Internal Revenue Code. There is no specific
method identified in the rules and/or regulations. There are
guidelines that discuss using similar companies in the same
industry who are public; any sales of common or preferred stock
to unrelated parties; internally prepared analyses using
discounted cash flows; a "safe harbor" by using an unrelated
third party to prepare the evaluation; a "safe harbor" allowing
illiquid stock of start-ups to be evaluated in house using a
certain set of criteria.

Based on my own experience 25 years ago when I was working in
Silicon Valley and dealing with lots of start-ups, I can tell you
that in many cases a stock without any public market and without
any "readily ascertainable value" was valued at a penny a share
when it was in the early stages of "start-up." This was a also a
period of time that had no established guidelines.

You also need to be aware, that this has been a highly litigated
issue relating to income tax, and estate tax valuation.

My advice is to first contact other employees or contractors who
worked or who are working for the company in Germany and ask them
if the company has performed an evaluation consistent with
German accounting and tax rules. If you fail to obtain any useful
data in this exercise, you just may have to use one penny.

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In March 2007 I received stocks of a German startup in exchange for my
services.

I know that I need to pay tax on the FMV of these stocks but, AFAIK,
FMV stands for "Fair Market Value", so how can I determine FMV if
there is no market for those stocks?

- quote -

*something* in the future.

What kind of evidence or documents would the IRS ask me to present
should my claimed FMV be challenged? (remember, my agreement and all
other documents related to that German startup are in GERMAN...)

Thanks,
Melissa

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >