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Posted by melissamcfaden on February 29, 2008, 3:22 pm
Please log in for more thread options On Feb 29, 12:26 pm, an_ordinary_guy_...@hotmail.com (Bill) wrote:
> melissamcfa...@yahoo.com posted:
>
> >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?
> >From the moment I received them until now, I
> >couldn't and still can't receive any cash for
> >them. The hope is that they will be worth
> >*something* in the future.
>
> For clarification, am I correct in assuming your "services" were
> provided in pursuit of a business you operate?
Yes, you are correct.
>
> 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.
>
My business started not long before I entered into agreement with that
German startup, so I do not have an established "normal charge" (yet).
> 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.
>
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.
> 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.
>
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?
> 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.
>
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.
> >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...)
>
> 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.
>
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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