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Posted by Fred Williams on February 29, 2008, 4:57 pm
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> melissamcfa...@yahoo.com wrote:
> > 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.
>
> >> 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.
>
> That is one way to estimate the value of the stock received, yes.
>
> > 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?
>
> 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.
>
> > 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.
>
> What about the principals? What did they contribute on a per share
> basis?
>
> > Does that call for a mess that no one can figure out or what? :)
>
> 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.
>
> > 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?
>
> 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.
>
> >> 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?
>
> 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.
>
> > I am confused. What am I to do?
>
> Find a good accountant who can properly value your stock.
>
> Stu
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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