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Posted by Harlan Lunsford on May 14, 2007, 9:24 pm
Please log in for more thread options Stuart A. Bronstein wrote:
>> I may have heard the term before, but the definition of
>> "phantom" stock just doesn't come to me right now.
> I guess I should have done this in the first place, but
> wikipedia is not the first thing I think of when I want
> information that is really authoritative. Here's what they
> have to say -
>
> "Phantom stock is essentially a cash bonus plan, although
> some plans pay out the benefits in the form of shares.
> Phantom stock provides a cash or stock bonus based on the
> value of a stated number of shares, to be paid out at the
> end of a specified period of time. Phantom stock is favored
> by closely held or family owned companies who want to
> incentivize management and other employees without granting
> them equity. Phantom stock grants align employees' motives
> with owners' motives (i.e. profit growth, increased stock
> prices) without granting employees an actual ownership stake
> in the company. Phantom stock can, but usually does not, pay
> dividends. When the payout is made, it is taxed as ordinary
> income to the employee and is deductible to the employer.
> Generally, phantom plans require the employ to become
> vested, either through seniority or meeting a performance
> target. Normally, phantom stock is taxable upon vesting,
> even if not paid out. Use of a "rabii trust" that subjects
> the payout to significant risk, such as the company not
> being able to pay creditors, may solve this problem. Phantom
> stock accounting is straightforward. These plans are treated
> in the same way as deferred cash compensation. As the amount
> of the liability changes each year, an entry is made for the
> amount accrued. A decline in value would reduce the
> liability. These entries are not contingent on vesting.
> Phantom stock payouts are taxable to the employee as
> ordinary income and deductible to the company. However, they
> are also subject to complex rules governing deferred
> compensation that, if not properly followed, can lead to
> penalty taxes."
Ah SO! Veddy cleah now.
So if I do the accounting work to set up a new company short
on cash, and get "paid" in phantom stock to be issued at
some future date, I'm really being given an IOU for my
services. IOW, I'm getting a note receivable and there
must be some value for that "note" (phantom note?) and that
value is taxable because it is for my services.
ChEAr$,
Harlan Lunsford, EA n LA
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