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Stripe faces $3.5B tax bill as employees' shares expire

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Re: Stripe faces $3.5B tax bill as employees' shares expire

#101

Post by theIV »

orangepurple wrote: post #98
noahmbarr wrote: post #22

(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems t…

Can you work out a payment plan with the IRS for such a massive bill?

As far as I'm aware, yes. I believe the IRS would much rather get money than no money.

Note: I'm about to try this myself (though far less massive).

Re: Stripe faces $3.5B tax bill as employees' shares expire

#103

Post by abledon »

yibg wrote: post #96
raylad wrote: post #3

I'm not following why there is a tax bill. If the stocks are founder stock or RSU, then the employee should have done an 83b election to avoid paying tax as they vest. If they are options, then the employee is under no obligation to exercise them, and owes no tax until they are exercised. What am I missing?

Only if you join early enough for the early exercise cost to be low. Anyone that joined after the first few years probably won’t be able to or want to pay the upfront cost for early exercising.

I'm gonna need a {username}.github.io/stripeipovisualizer for this, with chart.js and d3.js interactive charts. ALso, throw in 2 reddit ELI5s

Re: Stripe faces $3.5B tax bill as employees' shares expire

#104

Post by CodeWriter23 »

ztratar wrote: post #83
CodeWriter23 wrote: post #54

> Throughout the fundraising, Stripe has been adamant with investors that it doesn’t need the cash to fund normal business operations. Covering tax liabilities apparently is not part of "normal business operations" at Stripe.

Tax liabilities on (optional) employee secondary stock sales is most certainly not a normal business operation.

If your SOP is handing out options, yes it is. I’d also say GAAP likely requires building a cash reserve to cover such liabilities. I’m not an accountant but I’m pretty sure they have to be ready to cover the difference between the option and strike price until the expiry of the option. One would imagine that is less than tax when the option remains unexercised.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#106

Post by moralestapia »

bzax wrote: post #8
raylad wrote: post #3

I'm not following why there is a tax bill. If the stocks are founder stock or RSU, then the employee should have done an 83b election to avoid paying tax as they vest. If they are options, then the employee is under no obligation to exercise them, and owes no tax until they are exercised. What am I missing?

If you do an 83b election on RSUs, you'd recognize the entire present value of the RSU grant as income in that year, and pay taxes on it. I believe you're then limited to claiming capital losses on that if you leave before it all vests, or it all ends up worthless. Stripe was already worth $9B in 2016. If you joined then, it could have been prohibitively expensive to do an 83b election. The whole point of RSUs is tha…

Great comment.

>Stripe was already worth $9B in 2016. If you joined then, it could have been prohibitively expensive to do an 83b election.

I don't think anyone that joined on 2016 or after got more than 0.0000001% of equity or whatever, so it wouldn't have been a massive bill. Also, that's the point of 38b anyway. Tax now or later, but tax.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#107

Post by theIV »

raylad wrote: post #58
bink wrote: post #50

Earlier quoted context omitted.

If I'm understanding it correctly, the employees won't have a tax bill if they let the options expire, but they are presumably worth millions so they don't want to just throw that money away. If they exercise then they will owe taxes and they will also have no way to sell the shares (currently) to pay the tax bill.

Sure, but options don't expire while you are an employee. So if Stripe wants to let employees sell stock, they only have to exercise options equal to the number of shares they will sell, then they can use the proceeds to pay the tax. I still don't understand why there is a tax bill for Stripe.

> Sure, but options don't expire while you are an employee.

ISOs (not totally sure about NSOs) have a 10 year expiration from grant date[0].

[0]: https://www.law.cornell.edu/cfr/text/26/1.422-2

Re: Stripe faces $3.5B tax bill as employees' shares expire

#108

Post by siquick »

sbrother wrote: post #102

Why can't stripe let them expire, and then issue new grants to all affected employees with the same nominal value as the expired grants?

Let’s just hope this isn’t an option so a major corp can’t find yet another way to not pay tax.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#109

Post by rpearl »

dataflow wrote: post #88
noahmbarr wrote: post #22

(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems t…

> guessing Stripe has a blocking right on stock transfers Often there's right of first refusal, but blocking rights? Do they actually have that? Is this common? If so, (why) would they need right of first refusal?

At least some companies have board approval of transfers. Less common but not exactly weird
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