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Comment by vasco | Hacker News Reader

Nothing stops them from selling you back their share at close to zero if they really want to right it off.

That does happen, but not for taxes. They do it to close out the fund which has (usually) a ten year life.

They might have to prove to the IRS the share was actually worth that. Whereas if the business is bankrupt, it's obvious.

No - that’s true if you are trying to determine if you can write it off, but if you actually sell it back for $1, you can take the loss.

Not if the fair market value can be proven otherwise. It’s just fraud

It's not inherently fraudulent to sell something for below market value.

If I sell something I bought for $1 million for $1 in an arm's length transaction, I'm realizing a loss of $999,999 even if the asset was worth $500,000. And it'd be a rational decision if it cost me $5 million in opportunity costs to do that $500k sale.

That's not how US capital gains tax law works. It's legal to sell something at below market value, but you have to use the fair market value when calculating a loss for tax purposes. Of course some people cheat.

I'm reading the IRS website and it says:

https://www.irs.gov/taxtopics/tc409

> When you sell a capital asset, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss.

Am I misinterpreting this?

Should be easy to determine when a 409a evaluation was done.

how many vc investors are in the class of people that get audited by the IRS?

If VC investors have high income, they are the class of people that get audited the most. By a lot, like 25x more likely than someone with median income.

https://www.nolo.com/legal-encyclopedia/irs-tax-audits-trigg...

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