IRS 409A: Another Inconvenient Tax

November 12, 2009 at 10:01 am Leave a comment

Here at The Brenner Group, we often get comments from our friends in the venture capital and entrepreneurial communities about the burden of 409A compliance and the closely related 123R accounting rules for stock option expensing.

The comments range from expressions of pain and dismay to colorful language that is not suitable for reading at the family dinner table.

For early stage companies, the burden and frustrations can be significant because of the costs and complexity of compliance. Compliance with the rules reduces the efficacy of one of the key tools early stage companies use to compensate and reward employees: low strike price options. It seems to us that the rules would be a prime target for tax reform. Some form of simplified tax treatment would lift this burden from early stage companies and their investors, and would help them to attract and compensate employees.

Speaking of tax reform, if you haven’t seen it, information about a new documentary called “An Inconvenient Tax” has been making the rounds on the blogosphere. The trailer and website actually come across as non-partisan. The film makers indicate they have interviewed individuals with a range of political viewpoints, from Noam Chomsky to Steve Forbes, economists, and others. I am not sure what the film makers are actually advocating in terms of solutions, but it would certainly be a positive if the film prompts informed tax debate and real reform.

The documentary was profiled a few weeks ago by a blog at the Wall Street Journal. Here is the link: 

Bill Denebeim is a Vice President of The Brenner Group and has more than twenty years experience providing financial, regulatory and operational consulting services to executive management and investors of technology companies. Bill received his M.S. in Operations Research from Stanford University and his B.A. degree in Economics and English from the University of California at Berkeley. Bill is a holder of the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of San Francisco.

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Entry filed under: Valuations.

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