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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

#131

Post by konfusinomicon »

mis1988 wrote: post #92
KptMarchewa wrote: post #72

Earlier quoted context omitted.

I don't understand why there's tax on unrealized gains there.

Joys of the Alternative Minimum Tax. The difference between the exercise and the FMV counts towards your AMT income. (Disclaimer: not advice of any kind)

the biggest joy is that you get it back in the form of a credit over several years, all the while paying interest and fees on the tax bill you cant initially pay because your "gains" are in a private company's stock that you cant sell! I've yet to get a rational explanation of why the current AMT law is fair. sure for some people it makes sense, but for the exercise of ISOs in a private company, it's basically robbery where they give you a chunk of what they stole back every year, and hopefully a liquidity event comes along sooner rather than later

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

#132

Post by samclearman »

chii wrote: post #130
samclearman wrote: post #115

Earlier quoted context omitted.

In this case, the way it works is: 1. You exercise your options, for a paper gain of millions of dollars 2. However, you can't actually sell the shares (there are likely contractual restrictions on selling them, and even if not, there's not a liquid market) 3. So you have to pay millions of dollars of taxes even though your cash flow is zero. And before you say "but they're ISOs", there's no such thing as ISO's under…

> for a paper gain of millions of dollars which is why this part should never have been taxed. Until there's a sale of those shares, the price is merely an estimate and thus is not and should not be considered the FMV.

Not sure what you mean by "should" here, but the IRS definitely considers it to be a gain that you have to pay taxes on, regardless of whether you can sell the shares.

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

#133

Post by ojbyrne »

mertd wrote: post #78
georgelyon wrote: post #75

I've always been curious, what happens if they just let these shares just expire? It wouldn't look great for Stripe, but presumably they would just get back for free (modulo taxes) any shares employees could not afford to exercise. The value of those shares alone could be pretty enticing to the people in charge.

Good luck hiring or retaining anyone after that while Stripe is still private.

I think the point the previous commentator was trying to make was, why can't they let them expire and issue new options/RSUs of equivalent value to the same people.

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

#134

Post by tyre »

snotrockets wrote: post #126
MajimasEyepatch wrote: post #73

Earlier quoted context omitted.

I don't think it really changes the overall point you're making, but these would presumably be ISOs, not RSUs.

According to the story, Stripe has been compensating employees with double triggered RSUs

But not from ten years ago. Initially everyone was on options (ISOs) then moved to double trigger RSUs, around 2017 iirc

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

#136

Post by tyre »

konfusinomicon wrote: post #131
mis1988 wrote: post #92

Earlier quoted context omitted.

Joys of the Alternative Minimum Tax. The difference between the exercise and the FMV counts towards your AMT income. (Disclaimer: not advice of any kind)

the biggest joy is that you get it back in the form of a credit over several years, all the while paying interest and fees on the tax bill you cant initially pay because your "gains" are in a private company's stock that you cant sell! I've yet to get a rational explanation of why the current AMT law is fair. sure for some people it makes sense, but for the exercise of ISOs in a private company, it's basically robber…

It’s fair because otherwise you could compensate people for zero tax. For example, you have a CEO that can either be paid:

1) $1m in cash

2) $1m in stock

3) an option grant to buy 1m shares at $0.000001. Each share has a FMV of $1.

Without AMT, you could always take (3) and they would get $1m of stock for $1. Tax free.

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

#137

Post by danielmarkbruce »

runako wrote: post #123
danielmarkbruce wrote: post #53

Earlier quoted context omitted.

This take isn't right. Stripe has done the right thing here. They've always been honest about what the comp was, what the risks were, and now they are doing the right thing, again. The employees involved recognize it as such and the only people making disparaging remarks are either not involved or don't understand it.

> Stripe has done the right thing here. Having worked for a company that (indefinitely) delayed its IPO, I can say that they may be doing the right thing today. But also there were plenty of observers who pointed out contemporaneously that there was no need for them to keep putting off the IPO. Sarbanes didn't put a $200B valuation floor on IPO registrants. I've never taken a company public, so I don't know their rat…

There is also no need for them to do it. Being a public market has downsides. They've been consistent with this message that they may well stay private forever. They never misled anyone. All the folks involved in this are grown adults. If people wanted to work a company which promised to go public, they'd have worked somewhere else. Again, the employees knew it, know it, and Stripe is now doing the right thing, again. Every step.

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

#138

Post by theIV »

iav wrote: post #124
theIV wrote: post #99

Earlier quoted context omitted.

If they are ISOs, tax won't be due _upon_ exercise but will show up on that years tax return. Usually the AMT will hit you (if the exercise was worth it), and you'll owe the following year. This is a slightly longer way of saying I'm not totally sure how what you're saying invalidates what valzam said: as far as the IRS is concerned, you did realize gains (you got something of value), just not on anything "liquid," h…

when the gain shows up is irrelevant - IRS requires taxes to be paid on income in the quarter it is realized. Everyone needs to pay the estimated tax and then file the return for the final adjustment.

I'm not super familiar with this aspect, so this could be totally off-base: because this is sort of "out-of-band" income, it might factor into what you should be paying, but you won't be penalized for it; you didn't know exactly what the estimated income was (i don't believe you have to get a 3921 immediately upon exercise) so you can't necessarily estimate the taxes owed. This could be totally wrong? Also, I think there's a lookback period of a year that you can base your estimated taxes on.

All of this to say, I think what you're saying is a much more precise way of saying what I was trying to get at. :)

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

#139

Post by kelnos »

tyre wrote: post #136
konfusinomicon wrote: post #131

Earlier quoted context omitted.

the biggest joy is that you get it back in the form of a credit over several years, all the while paying interest and fees on the tax bill you cant initially pay because your "gains" are in a private company's stock that you cant sell! I've yet to get a rational explanation of why the current AMT law is fair. sure for some people it makes sense, but for the exercise of ISOs in a private company, it's basically robber…

It’s fair because otherwise you could compensate people for zero tax. For example, you have a CEO that can either be paid: 1) $1m in cash 2) $1m in stock 3) an option grant to buy 1m shares at $0.000001. Each share has a FMV of $1. Without AMT, you could always take (3) and they would get $1m of stock for $1. Tax free.

So what? $1M in stock doesn't pay the rent. They'd still get taxed when they sell the shares.

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

#140

Post by postalrat »

mertd wrote: post #78
georgelyon wrote: post #75

I've always been curious, what happens if they just let these shares just expire? It wouldn't look great for Stripe, but presumably they would just get back for free (modulo taxes) any shares employees could not afford to exercise. The value of those shares alone could be pretty enticing to the people in charge.

Good luck hiring or retaining anyone after that while Stripe is still private.

Thats a lot of money they don't need to pay that could be used to hire and retain people.
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