The real money on the table from a poor-quality 409A valuation lays ahead and underlies the ultimate purpose for the 409A valuation report: tax compliance. That is the province of the IRS…and, in the case of California, the Franchise Tax Board – neither warm to tax evaders, as governments are cash starved in a weak economy, and their penalties and interest prove it. For the taxing entities, the penalty is 20% to the IRS on the taxable income and is triggered from vesting date, not exercise date, and 20% to the FTB, plus underpayment interest at a combined 6%. (more…)
In Part I of this series, we explained why you can’t judge a valuation or a firm by its fees . Coming into focus now should be an understanding of how a poorly prepared valuation turns into a time and cost debacle as valuators battle and hourly billing charges escalate. Let’s put some hard numbers on the assumptions. (more…)
When was the last time you bought a service you understood little about and, for lack of any other reason, selected the vendor based on price? Happens all the time with electricians, lawyers, mortgage brokers, auto repair shops, and tax preparers. And the consequences can be immense as the incompetent prey on the ignorant, often delivering little if any value for their fees.
One such field that gets lots of play is the compliance valuation performed primarily for IRC 409A to justify private company stock option strike prices, and secondarily for ASC 718 to account for equity based compensation. (more…)
In proceedings before the Court of Federal Claims, the IRS won a significant victory over a taxpayer who appealed penalties and interest levied against him by the IRS for having received undervalued stock options. In the ruling, the IRS persuaded the court to make a number of judgments upholding its position that certain stock options constitute deferred compensation and are subject to IRC 409 penalties and interest. (more…)
As most know, the JOBS Act passed by Congress in April provides a number of regulatory changes designed to facilitate capital formation for start-ups and early stage companies. One of the most significant provisions is a revised exemption from registration for relatively small (up to $1 million) offerings, typically sold to friends and family and other non-accredited investors. ThomsonReuters’ PEHUB recently published an excellent summary of some of the key advantages/disadvantages entailed in this financing strategy. (more…)
It may sound like common sense, but a 409A valuation needs to satisfy certain minimum requirements: (more…)