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Comment by medvezhenok | Hacker News Reader

Would Thiel have been willing to sell his shares to someone else at $0.001 at the time he put them into the IRA? Because that's ultimately what market value is about.

It's also one of the valuation proposals for people playing valuation games with illiquid assets. You can declare them at whatever value you want (and pay tax on that value), but you are forced to sell if someone offered you that value for the asset (if you claim your house is worth $1M, we'll let you pay property tax on $1M, but if someone offers you $1.1M for your house, you're forced to sell). That would cut down on people inflating/deflating asset valuations to game tax codes.

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> Would Thiel have been willing to sell his shares to someone else at $0.001 at the time he put them into the IRA? Because that's ultimately what market value is about.

Well... no. (Can't believe I'm defending Peter F-ing Thiel)

I might own some AAPL shares that I think are worth $1000/share--so I'm not willing to sell my AAPL shares for less than $1000 each. The market (today) thinks they are worth $133/share. Who is right?

Thiel might have really truly believed that his 2M shares would be worth a few billion dollars one day. But if you can't find anyone who is willing to buy them for that price, then it doesn't matter. The "fair market value" (what the IRS cares about) of those shares is not a few billion dollars. It doesn't become a FMV until you can find an arms-length buyer who is willing to buy the shares for that price.

You could pay someone to create an independent valuation of the shares--but for a brand new company that has no employees and no assets, not even IP, why would you expect the valuation to come back at much more than $2k?

> PayPal later disclosed details about the early history of the company in an SEC filing before its initial public offering. The filing reveals that Thiel’s founders’ shares were among those the company sold to employees at “below fair value.”

The article implies 0.001$ was below fair value based on PayPal's own declaration at the IPO. That's why.

In any case, I think this is unimportant, the important question is can a founder always transfer their owning shares into a tax advantaged Roth IRA? Does this make sense to permit?

If I start a company today and just buy my shares into my Roth IRA before I even write a single line of code or hire anyone, so that if my startup grows all my owning shares of it are tax exempt.

And if it does, to what extent? Should there be no cap?

In reality it's all just a political question, who should pay taxes, how much, and in what circumstances.

Articles like this I think help people understand and think through some of the edge cases around that, to better allow them to form an opinion on it.

I am not interested in what would have, could have, or should have happened. I am trying to find out what did happen, and any evidence to support it.

You have an interesting proposal for valuations though, although, it seems to have a few logistic hurdles that cross my mind.

What happened was Thiel buying 1.7M shares of stock in his own startup at a value of $0.001 per share in 1999 in his Roth IRA (and then cashing out for $30M+ in 2002). It's debatable whether it was legal (because he was an officer/director of the company and that law is on the books), but the better question would be - should it have been illegal, and the answer to that, in my opinion, is a resounding yes.

I believe non-public investments should be banned from Roth IRAs (and that we should close all of the backdoor loopholes to them as well). They were meant for a certain group of people at the outset and were then twisted around in knots to provide more tax-breaks for the well-off (which should be rolled back). I think mega backdoor Roth should not be a thing, rollover Roth IRA should not be a thing - bring Roth back to it's original vision.

The IRS apparently agreed with you. The article sloppily doens't doesn't give a year, but:

> The IRS, meanwhile, was floundering in its efforts to police retirement accounts. At one point the agency recommended Congress prohibit IRA accounts from buying investments that aren’t traded on a public market, such as founders’ shares. That went nowhere, too. Instead, Congress began slashing the IRS’ budget, kneecapping the agency for more than a decade.

>It's debatable whether it was legal (because he was an officer/director of the company and that law is on the books)

I am interested in finding out the answer to this, as others have posted in this thread the text of the law which makes it seem like he should not have been able to, and what reasoning could possibly have made it legal.

You won't find the answer, because you're innocent until proven guilty. The laws are not formally defined, it would need to go in front of courts, and then people could argue whatever interpretation and evidence they want to convince one way or another.

I think what's more clear is that it's clever and probably an unintended loophole, be it technically legal or not isn't so important. What matters in the end is a bunch of money didn't go to maintaining society's infrastructure, paying for military, and all that, instead money from other sources and other people's pockets was used. Do you care? Do we care? I think that's the more relevant dimension to think about and discuss.

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