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Asher headshot.jpgCONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

Tax planning can be challenging at any time of year, but this year may be more challenging than normal.  As with any presidential election year, there is a lot of legislative uncertainty leading into 2013.  Adding even more fuel to the fire, there are a number of significant tax rate changes scheduled to occur at the end of 2012 unless Congress steps in with a last-minute change.  Given the election year, an affirmative action by Congress seems very unlikely prior to November, which could result in last-minute planning…

Continue Reading Tax Changes Are Looming

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CONTRIBUTED BY
Tyler Hollenbeck
tyler.hollenbeck@dlapiper.com

In my earlier post regarding considerations when creating your option plan, I briefly referenced the tax advantages, from the recipients’ perspective, of “incentive stock options” (ISOs), which can only be granted to employees, relative to so-called “nonqualified options” (NQOs), which can be granted to employees or consultants.  Although there a number of web resources regarding the distinctions between ISOs and NQOs, these resources are often heavy with tax jargon and thus poorly understood.  Accordingly, we have put together the below quick reference guide, which is intended only as a high-level summary of the current US federal tax consequences.Continue Reading Incentive Stock Option Plans – ISOs vs. NQOs

Criddle.jpgCONTRIBUTED BY
Kevin Criddle
kevin.criddle@dlapiper.com

Successful founders that fail to affirmatively make a Section 83(b) election may face staggering tax consequences years down the road.

The Internal Revenue Code (the “Code”) generally requires founders (or employees) that are granted restricted stock for services to report income as the stock vests.  Accordingly, any increase in stock value beyond the purchase price is recognized at vesting, regardless of sale, and taxed at ordinary rates.

Section 83(b) of the Code, however, allows founders (or employees) to affirmatively elect to be taxed on the value of restricted stock at grant rather than vesting.  Because the purchase price of stock at grant is often equivalent to its fair market value, an 83(b) election typically results in zero recognizable income.  What is more, the election advances the beginning of the one-year capital gain holding period, often resulting in preferential capital gain rather than ordinary tax treatment upon sale.  For an 83(b) election to be effective, it must be filed with the IRS within 30 days of the purchase date.Continue Reading Section 83(b) Election, A Founder’s Best Friend

**UPDATED December 18, 2010 at 9:00 a.m.** The proposed legislation referenced below that would extend the 100% tax for capital gains (and alternative minimum tax) on QSBS was signed by the President on Friday.  Accordingly, the 100% QSBS tax break now runs through the end of 2011.  Here is a good summary of the various items included in the Tax Relief Act of 2010.
Continue Reading ** UPDATED** ‘Qualified Small Business Stock’ tax break – Extended through 2011

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CONTRIBUTED BY
Tyler Hollenbeck
tyler.hollenbeck@dlapiper.com

Although valuation is obviously the most critical variable in an exit event, the structure of the transaction can also have significant (and often surprising) effects on the consideration ultimately received by the sellers’ shareholders. Moreover, the buyer’s interests will generally be directly adverse to those of the seller with respect to deal structure. This is particularly true in deciding between an asset sale and a stock sale, where parties often adjust other elements of the deal (including valuation) in order to accommodate one side’s preferred structure. Accordingly, understanding the following three basic drivers of the asset versus stock sale question can significantly improve a founder’s negotiating position vis-à-vis potential purchasers.Continue Reading Selling your Startup: Asset vs. Stock Sale

The day has finally arrived that many (if not most) life sciences startups and venture-backed companies have been waiting for – the deadline for the IRS decision regarding which companies will be awarded a Qualified Therapeutic Discovery Project (”QTDP”) tax credit or grant (and how much they will receive).
Continue Reading QTDP tax credits and grants: And the winners are… [updated]