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Posted by packetvoice50 on April 15, 2008, 7:29 am
Please log in for more thread options On Apr 15, 2:04 am, t...@funyet.net wrote:
> On Apr 14, 8:48 pm, packetvoic...@gmail.com wrote:
>
>
>
>
>
> > 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
> > packetvoic...@gmail.com
> > Boston, MA
>
> 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
>
> --
> - Show quoted text -
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
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