On Apr 15, 2:04*am, t...[at]funyet.net wrote:
- quote -

Thanks for the quick reply. I guess I should have been clearer that I
have been advised that I must do a FMV appraisal at the time of
phantom stock GRANT and that it is subject to payroll with-holding
then. What I was questioning is if the employee must indeed pay FMV
for it or if I am supposed to report it on their W2, no different than
Restricted Stock.

That seemed questionable to me for something that has no value accept
at that trigger event.

Regards,
Michael



========================================= MODERATOR'S COMMENT:
- please trim the post to which you are replying

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On Apr 14, 8:48 pm, packetvoic...[at]gmail.com wrote:
- quote -

While I have not checked this section by section, I think your
analysis is correct. To avoid adverse effects under 409a, payment
needs to be made soon after the triggering event, say within 90
days. I think your sale would establish FMV so no separate appraisal
should be necessary. And of course the payment must be subject to
payroll withholding.

timl

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I am interested in giving my employees a small amount of "phantom
stock" in my S Corporation; I am 100% owner of the outstanding shares
at this time.

I want them to share in the upside if I am so fortunate as to sell the
company. That would be the only situation that they would receive a
"pay day."

Question: Are all Phantom Stock Plans subject to Section 409(A) of
the IRS Code and is a fair market valuation required at the time they
are granted?

** What if the value is totally dependent on the company being sold
(and the "phantom stock" is subject to forfeiture if they leave the
company's employ)? The trigger event and dates are therefore highly
uncertain. I do, however, intend to have the phantom stock equate to
some number of common stock shares (if that makes a difference). **

At time of payday, I was hoping to structure it sot that the entire
monetary value that they receive would be taxable at ordinary income
tax rates.

I was hoping to avoid all of the pitfalls of ISOs and NQSOs and not
create a taxable event at time of Phantom Stock issuance. And don't
see these being the same as Stock Appreciation Rights (SARs).

I was also advised that they would need to be granted subject to a
qualified deferred compensation plan (whatever that means).

Any advice or answers to my questions from people familiar with
corporate tax law would be appreciated.

Thanks for your help!
Michael Lederman
packetvoice50[at]gmail.com
Boston, MA

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