Subject: How to determine FMV is company won't provide info
Date: 2 Sept 2000
I appreciate all the good information available on your site, and have
learned a lot from it.
I have a question concerning the FMV of shares in a non-publicly traded
company: You state that "the company should provide the information you need
to prepare your income tax returns." How do I figure the FMV when I
exercise my options, if the company will not provide this information? Can I
consider the price they are currently setting on options granted to new
employees as the FMV, in the absence of any other valuation statement from
p.s. I tried taking your advise, and asked the benefits person. She referred
the question to the CEO, who offered the following gobbledy-gook: "The
market value of the stock today, for tax purposes, for someone who exercises
today would have to be determined based on the events which could determine
our value. Said differently, someone who exercises now would have to wait a
bit to see what the current share value would be." He seems to be claiming
that the current value depends on future events; this doesn't seem right to
p.p.s. in case it makes any difference: these were originally ISO's granted
to me as an employee. I left employment 5 months ago, so if I understand
correctly, these have automatically converted to NQSO's.
Date: 11 Sept 2000
Thanks for writing.
Please try to be reasonable in your expectations for your employer.
The CEOís real answer is, "I donít know right now. Iíll get the information for you in time for you to file your income tax returns." Establishing the value as of a date for closely-held stock isnít easy. For publicly-held stock, you can get trading information that simply isnít available for closely-held stock.
This may make it hard to plan, but the AMT exposure for closely-held stock doesnít tend to be nearly as great as after the company goes public.
Your idea of using the option price for new options seems reasonable. The rule is, in order to qualify as an ISO, the option price may not be lower than the fair market value of the stock at the time the option is granted.
IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised
that any written tax advice contained in this answer was
not written or intended to be used (and cannot be used) by any
taxpayer for the purpose of avoiding penalties that may be
imposed under the U.S. Internal Revenue Code.