Something occurred to me while reading the article: Do people pay tax against the inflated VC valuation? In other words, if Facebook for Cats is valued at $1000 million after a recent VC deal where they get 10% of the company in preferred stock for $100 million, do you pay tax for your 0.1% of common stock assuming it's worth $1 million? Is there some standard discount for common stock, or some other IRS-approved way to compute the value?

It would seem silly to use the VC valuation, because A.) It's a preferred stock valuation and B.) You'd have a '37signals problem' if nobody else is actually willing to buy the rest of the company for that price: https://signalvnoise.com/posts/1941-press-release-37signals-...