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Originally posted by Greedy,Greedy,Greedy
You're dealing with a different world, and I was responding on restricted stock. The post in question was :
The point is, there are service providers in corporations who realize capital gains on their return, even if their initial interest was received in connection with services. The VCs are in a similar position on the carried interest - isn't the right compensatory value the value on day 1, before a dime has been earned? After that, they are just getting a piece of the gain.
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I can see an argument for that. There's also a some law on both sides of the issue. It's something the Service has issued Revenue Procedures for guidance on, but it's still working itself out.
Of course, if I can anticipate your next point...no, the value of the carry isn't zero on day one. It's the NPV of the estimated payout. Based upon the manager's past record and the market conditions, someone much more mathematically adept than I could produce a value. But then, your guys would be paying tax on dry income, years before they see the cash.
