> It would be unprecedented, as far as I know, for a company to be liable for taxes on the employee's on-paper-only gains, occurring some arbitrary time later at option-exercise.
The questions is ... would the same taxation be applicable in the reverse direction ? Say SF taxed you on big paper gains last year, your startup crashed and burned this year. Can you get a big refund ?
If not, then it would suggest a new avenue for arbitrage: trading stock in dead startups merely to offset gains in still functioning entities.
As this provision only triggers on exercise, not sale, there seems no way for an ultimate loss to balance out for the company. And since an employee would never exercise an underwater option, there's never a 'negative' payroll expense flowing to the company.
Intentionally overpaying for dead/dying/underwater company options/equity, to create offsetting losses, would save less in gains taxes than the new losses taken on. And, there's no indication a company could deduct investment losses elsewhere against this particular purported 'payroll expense'.
The questions is ... would the same taxation be applicable in the reverse direction ? Say SF taxed you on big paper gains last year, your startup crashed and burned this year. Can you get a big refund ?
If not, then it would suggest a new avenue for arbitrage: trading stock in dead startups merely to offset gains in still functioning entities.