Federal Securities Laws applied to ICO’s – Initial Coin Offerings

New “coins” or tokens and their platforms are all the rage.  Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Zcash, Dash, Ripple, Monero, the list goes on and on and new ones keep popping up.  The new coins are either entirely their own platform or they are derivations, i.e. spin-offs of one of the existing virtual currency platforms. Read more

New York Qualified Emerging Technology Company (QETC) Incentives

If your company operates in New York and meets the definition of a “qualified emerging technology company” (a “QETC”) it is eligible for New York tax credits.  Additionally if you are a New York State taxpayer and interested in investing in a QETC you may be eligible to claim a credit as well. Read more

New York State Manufacturer’s Real Property Tax Credit

If you are a “qualified New York manufacturer” doing business as a corporation and you paid real property taxes (either as the owner or as the lessee) for your business location where you perform the manufacturing activities, you are eligible for the New York State Manufacturer’s Real Property Tax Credit.

The Credit is equal to 20% of the eligible real property taxes paid by the manufacturer each year.   The manufacturer must exclude portions of the owned or leased real property that are not used in the manufacturing activities (such as parking lots, and common areas, etc.).

A “qualified New York manufacturer” is a manufacturer that either (1) has property in New York State of the type described for New York’s investment tax credit under Tax Law section 210.12(b)(i)(A) that has an adjusted basis for federal income tax purposes of at least $1 million at the end of the tax year, or (2) has all its real and personal property in New York State.

 

IRS Voluntary Disclosure Practice

Faced with the situation that you or your company has been misreporting income or miscalculating taxes, you should not stick your head in the sand and hope that it never catches up with you.  You should work with your accountant and attorney and calculate the amount due.

First, the IRS has two voluntary disclosure programs.  The first is for domestic voluntary disclosure of tax issues, which I am discussing here.  The other is a separate program for Offshore Account Voluntary Disclosure (to be discussed in a later post). Read more

Partnership Taxation: Substantial Economic Effect

Partnership taxation is a complex area of tax law. We’ll be walking through some of the issues you should be aware of.

The first is to ensure you are getting the deal you thought you were.  Partners (or LLC members where the LLC has multiple members and does not “check the box“) can agree on how to allocate the profit and losses of the business as they see fit in the agreement.  The allocations can be done in any manner the partners/members choose, provided that the allocations have “substantial economic effect.” See IRC 704(b); Treas. Reg. 1.704-1(b). Read more

Strip Rights

In addition to the other ways we’ve discussed here (stock options, phantom stock, stock appreciation rights), another way to compensate individuals working for a startup is to give them a cash payment upon a change in control of the company, called in the industry a “strip right”.

For example if a startup company has four founders each owning 25% of the shares, and they bring on another but don’t grant him or her shares, the initial founders can agree to pay the new individual a percentage of the “net proceeds” received from a “change in control” of the corporation.   “Net proceeds” is usually defined as the gross proceeds received minus transaction costs and brokers commissions as well as some other items.   A “change in control” is defined as it normally is in these agreements, and covers if the company merges with another or sells substantially all of the company’s assets.  In such a case, the shareholders would receive cash (or assets it can sell for cash, like tradeable shares of the acquirer).  The strip right agreement would require the shareholders that granted it to pay to the holder of the strip right, either a percentage or flat fee before they received their cash for the change of control.

In the example, if the four founders grant a 10% strip right, and a couple years down the road the company is sold for one million dollars, with transaction fees of $100,000, the holder of the strip right would receive $90,000 (net proceeds of $900,000 x ten percent).    The shareholders would split the rest of the $810,000 and each receive $202,500.

One of the benefits of the granting of the strip right is that it is not taxable to the recipient.  The downside, at least to the recipient is that they are not a shareholder of the corporation and they may never receive a cent if there is never a change in control.  Due to its tenuous nature, the strip right is usually granted in connection with other compensation awards.