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Jim Schneider
The Taxman86 Speaks...
06 July 2000
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Stock Options are popular; Where are the consultants/self-employed; What is the authority for Meals and Lodging?

1. Stock Options are the king say some.

We have discussed Mystockoptions.com and now we have found a Yahoo Club run by David Wight which seems to be very lively to say the least. One point that seems to be missed is the difference between established companies with established public stock and startups. The issue turns on valuation. We have also put the issue of Qualified Small Business Stock [QSBS] under IRC Section 1202 and the Roll Over under IRC Section 1045 up on their discussion boards and got the following response:

    "...the advice I have been given is that stock obtained through the exercise of an ISO is QSBS if the company met the requirements at the grant of the ISO..

    further, if the company is acquired by a non-qsb, the shares you get in the new company still have the QSBS attribute in terms of roll over and 5 yr holding.

    I'm about to sell some stock from and ISO and flip it into a start-up (as an angel) and another chunk into a venture fund..."

If the answer is correct that the time is "the date of grant" and not "the date of exercise," then the Angel Group [1M and growing] is being fueled by more lucky ones then we had assumed [We assumed "the date of exercise," which may cut off those who exercised after major IPO since there is a $50M gross asset limitation] who have exercised their ISO, paid the AMT, if any and now are sitting back and trading into other investment opportunities; or as suggested, the original QSBS may have been involved in a tax free merger with a larger company such as Texas Instruments [TI], and the TI stock is now QSBS forever.

2. Boulder Colorado, where art thou?

We spoke to a CPA yesterday who said "...Boulder Colorado is high tech country...and everyone works out of their home..." The next question from the CPA was whether IRC Section 119 can work with someone "on call 24/7" such as medical/dental types? We suggested that the issue turns on where the employer's business premises are located. Does the medical/dental type work on the business premises while "on call" for other things. We suggest the "Doctor is Home," pg. 68 of the House of Business [Premier Issue August 2000] has the answer.

We also suggest that the movie industry, whether you like it or not, is the father of the New Economy, with support to the 'independents' coming from the major studios. Will the big high tech companies be filled with "e;independents" who work out of their home-based businesses?

3. Where is the authority for Meals and Lodging Exclusion?

IRC Section 119 and the regulations thereunder have been around for a very long time and do not currently have any exclusions for key employees or owners as there are in other fringe benefit exclusions. Check out Reg. Section 1.119-1(c)(1) and various court cases [Comm'r. v. Anderson, 371 F2d 59 (6th Cir. 1966) vs. Lindeman v. Comm'r. 60 T.C. 609 (1973), one made it, one did not] that have held:

  1. Living quarters that constitute an intergal part of the business property; or
  2. Premises on which the company carries on some of its business activities, are "business premises."

The key is whether a "significant" part of the employee's duties are performed at the living quarters. As in the movie Back to the Future we must move from the 50"s to the New Millenium, where Cell Phones, Faxes, E-Mails, High Speed Computers, High Speed Internet, etc., is the norm. Are 'significant services' being performed at home? We think so.

Jim Schneider, LL.M.

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