How does the new LLC determine the total number of issuable shares?

When would stock in a start-up LLC be considered to have value such that an award of shares has positive tax consequences?

• For example, a partner in a start up LLC gets a grant of stock that vests quarterly. He neglects to make an 83(b) election. At what point would the IRS determine that the shares in the LLC have material value such that a quarterly vest would be a taxable event?

• Answer:

  Under 83(a), as and when the shares vest, that is, any risk of forefeiture of such shares lapses, then that member would have to include the fair market value of such shares as taxable income.  At the same time, the company would have to report that income as either employee expense (W2) or compensation to a consultant (1099).  The company would be expected to use reasonable valuation methods to value the shares - see discussions under 409A, for example.  In the absence of utilizing such valuation methodologies, the IRS could challenge the valuation.  The IRS would most likely look to objective criteria regarding valuation such as recent sales by the company of its securities or, in the absence of such sales, value of reasonably comparable companies.   Disclaimer.  All of my responses on Quora are subject to the Disclaimer set forth in my Quora Profile.