So now it’s okay to quote articles huh? Especially ones that are around a year old. Let’s look at what the IRS has to say:
First, notice it says generally. Second, is more than 50% of stock in Facebook owned by fewer than 5 individuals? I don’t know, but even if you consider the investment made by venture capital firms like DST, and Accel as one person each, it likely be very close call. Here is a pie chart from April of 2012 showing Facebook ownership. Depending on who owns what in the “staff” slice, it’s unlikely you can find 4 individuals with more than 50% ownership collectively (Zuckerberg, Moskovitz, DST, and Accel collectively own 49.7%).
Regardless, the only reason that becomes an issue is because typically, a closely held corporation does not have a transparent market share price. That is clearly not the case for Facebook.
Since you apparently know better than anyone how this works, why won’t you take my bet? I am being sincere, I will bet you real money that his shares will be valued at more than a penny. Why won’t you take easy money?
Note that there is no vesting period in this case. Also note that the pseudo-sale and the “fair market value” is at a particular date, not at any other time. At that particular date, the fair market value, that is, how much the stock can be possibly sold for, is $0.01.
Cite please for valuing the restricted repurchase shares of someone rejecting citizenship at a value above zero.
Why do you think this given that every expert who has been quoted by media outlets seems to disagree? Here is another link from Feb that says fund units were valued at $40 a piece. In Jan., it was $35.50. Please explain again why you think these STOCK PRICES will not be relevant when the IRS looks at what the fair market value will be.
Also, please link to a document from Facebook detailing the specifics of this restricted share agreement.
Because, as you pointed out, the stocks are valued on the day before expatriation date. Not in Jan or Feb.
One reason why REITs have fallen so much in 2007-2008 was because their book values went hugely negative. That was not because the mortgages they held/serviced became suddenly worthless or that the properties they held were destroyed. That was because the liquidity in the market completely disappeared, thus the “fair market value” became zero or very close to it and had to be reflected in the book value.
If there is no liquidity in the Facebook private stock at the time that you’re trying to value it, its value is whatever you can sell it for - which is $0.01 back to Facebook.
Do you honestly think it Saverin wanted to sell his stock today, the value would be a penny? That the fair market value would be a penny. Because if you do, than you are an idiot. Frankly, the IRS will not fall for it, so I don’t knwo why you expect anyone else to.
How are you aware of it, and the specifics of the documents? More importantly, why do you assume nobody who are commented on the case in public is aware of it?
Also, why should anyone trust you given that you have been proved wrong on a number of points in this very thread?
Just to highlight how absurd your parsing of the facts is, by your logic, any owner of stock in a closely held corporation could gift or trade their stock (basically) without taxation just because they draw up an internal document saying the stock is worthless. So if Zuckerberg dies tomorrow, his heirs would have to pay basically nothing in estate taxes on his Facebook shares according to you. Do I have that right?
If you looked at that IRS document I cited above, section 8 of it addresses that. The restricted share thing is not taken into account for gift tax purposes, but is for estate tax purposes.
I would also like to offer Terr a chance to make easy money and participate in this bet.
Revenue Ruling 59-60 which you cite above says a lot of things about valuation for estate tax purposes. It also has a section that addresses the valuation of restricted securities.
In its analysis, section 8 cites to Rev. Rul. 157, 1953-2 C.B. 255.
The conclusion of Rev. Rul. 157, 1953-2 C.B. 255 is:
Rev Rul 157 cites to a case Estate of Trammell v. C. I. R. 18 T.C. 662 Tax Court, 1952 that presented almost exactly the facts resented in rev rul 157.
It also cites to Rev Rul 189 which states:
At this point I would like to ask if you still think that Saverin’s facebook shares will be valued at $0.01 because I don’t know what else I could say to convince you.
These sort of provisions are common especially when you have founders that are concerned about control. They might have strategically placed stock in the hands of carious investors to prevent cooperation between shareholders that might wrest control from the founders, this careful stock placement requires limiting transferability and one way they do it is to give themselves an option to buy any shares that people try to transfer for a penny so that every transfer basically requires their consent. The investor shares sometimes also have very limited voting rights compared to the founder’s shares. These are not new or novel mechanisms and the IRS has had to value these sort of arrangements for decades and they don’t value these things at the forfeit price ($0.01 in this case) unless there is an actual forfeit (see Estate of Salt v. C. I. R., 17 T.C. 92 Tax Court, 1951). So unless facebook actually repurchases these shares on the valuation date for $0.01, the IRS is generally not bound by that repurchase price.
I am aware that such things are common. My question was more about how Terr seems to know the specifics of such an agreement whereas no other expert has ever mentioned it or how it would be relevant.
I would again like to ask Terr to take my bet. You have witnesses. We can agree on an impartial expert or just wait for news of how the tax thing shakes out. You’d think since you are apparently privy to inside information, you would want to take advantage of my “ignorance”. Why do you keep ignoring my proposal? Especially since you can make twice as much money now that Damuri has agreed to take part.
The US is one of the few countries that taxes its citizens when they live abroad. AFAIK, it is also one of the few countries with a robust Foreign Tax Credit. So it’s not as bad as emacknight makes out. AFAIK. Perhaps an expat doper can elaborate or correct this impression.
…regardless of the tax credit it doesn’t really make the policy of taxing people that don’t live in your country any less dumb. I’m a Kiwi and if I moved to Australia I wouldn’t end up paying taxes to two countries: that would just be stupid.
I just don’t get the outrage in this thread: it just strikes me as patriotic jingoism from a whole lot of posters who normally aren’t patriotic jingoists.