

President Obama Signs a Temporary Bill to Encourage More Angel Investing - tchae
http://www.goodwinprocter.com/Publications/Newsletters/Client-Alert/2010/Temporary-Exclusion-for-100-of-Gain-from-Qualified-Small-Business-Stock-Acquired-By-Year-End.aspx?article=1#news_article_top

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bugsy
A three month window that started last month?

Seems like this bill was custom crafted for some specific person that has
already made his move. It seems very unlikely that many investors hearing
about this bill today will be able to change their strategy in such a short
time period, it would only affect deals where they have the agreement made and
paperwork and financing all ready to go with just the final signatures
remaining.

Therefore it is not a bill to encourage investment. It is a bill to help out
some specific person.

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devmonk
Text of the bill:

<http://www.opencongress.org/bill/111-h5297/text>

And related tax code:

<http://uscode.house.gov/download/title_26.shtml>

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ojbyrne
"The investor must hold the stock for more than five years" and you must
realize the gain before Jan 1, 2011. How does that encourage new investment?

~~~
jbl
My reading is that one needs only to purchase the stock before Jan 1, 2011 and
then hold it for at least five years. Gains from sale of the stock after that
would then be taxed according to this new bill.

~~~
ojbyrne
Ah, I guess it could be read that way:

"which includes a temporary exclusion for 100% of the gain recognized by non-
corporate investors from the sale of qualified small business stock (“QSBS”)
acquired after September 27, 2010 and before January 1, 2011"

so the dates apply to "acquired" rather than "recognized." It's pretty
ambiguously worded.

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shasta
I find it almost impossible to read the sentence your way because you'd have
to split the phrase "acquired after September..."

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jpwagner
note that this does not apply to any of the following types of businesses:

• Businesses that performed services in health, law, engineering,
architecture, accounting, performing arts, consulting, athletics, financial
services or brokerage. • Businesses that have as their principal asset the
reputation or skill of one or more employees. • Any banking, insurance,
financing, leasing, investing or similar business. • Farming, mining or
petroleum production. • Hotels, motels, restaurants and similar businesses.

~~~
jbooth
Just wait till it makes it to Fox News tonight, it'll be explicitly for
socialist private businesses.

EDIT: Come on guys, that's really not funny at all? Socialist private
businesses? Throw me a frickin' bone here.

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raheemm
HN community is ultra-cautious about upvoting humorous comments. This is
likely because these types of comments quickly devolve into and encourage low-
quality discussions. The exception is when the comment is extremely witty and
contextual.

Actually, it would be interesting if someone did an analysis of the top 100
humorous comments on HN - it would be very fascinating.

Edit: I kinda had a fear that I would be downvoted for explaining.. oh well

~~~
jerf
I especially don't upvote humor that is nothing more than social signal
flashing. If your "humor" boils down to "Hurr hurr, them folks sure are teh
dumb where we are teh smartz!", expect a downvote. That's toxic stuff,
regardless of the target.

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jbl
I heard about this a while back. One thing that I haven't heard any talk about
is how this affects early employees who may have had options in their company.

It sounds like this could benefit people exercising options. At least, I don't
recall reading anything that would preclude these benefits from being applied
to option purchases.

Does anyone have any insight into this?

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oiuytgfrtgyhuji
So why does this only run for a few months - until the end of the year?

If you want to encourage investment in startups doesn't this have to be
permanent - not just a hand out for deals that are already in progress.

(assuming it's not just a technical point that it needs a special bill for the
current year and then becomes permanent as part of some other legislation)

~~~
yock
You timebox something to encourage immediate action. Making it permanent or
even long term may encourage investors to wait for the market to improve
before acting, which isn't ideal for a bill aimed at improving the market.

~~~
oiuytgfrtgyhuji
These deals take months to put together though - this is only sweetening deals
that would go ahead anyway, or giving a quick tax loophole to anybody that can
put together a fake deal quickly.

It's like trying to boost car workers jobs by saying any new car bought today
only is tax free - that doesn't exactly motivate makers to open new plants.

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WildUtah
Does this have to be an ordinary corporation, or does an LLC taxed as a C
corporation count as a corporation here? It's a lot less hassle and paperwork
to have an LLC.

~~~
endtime
I believe you have to be a C corp...we're an LLC and we've talked about
converting before the end of the year specifically for this.

~~~
WildUtah
Looks like my state has reduced requirements for single-shreholder
corporations so I could start out with one of those this year and deal with
complications when I add partners. It's just a choice of one day of
formalities and pain today for a chance that I will want to sell it in five
years.

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runT1ME
I have money in my own personal savings. I also am on the verge of
incorporating.

Can I invest some of my own money to save some money in taxes down the line if
I pay dividends to investors?

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rdl
This will help founders as much as it helps angel investors. Assuming you're
building a business which is likely to exit at $50mm or less (i.e. most
consumer internet companies), the biggest hardship is holding on for 5 years,
which could be a couple years after M&A exit.

This also encourages founders to bring early employees into equity ownership
by purchasing founders stock, vs. options, so those employees can get this
favorable treatment. (generally, buying your stock with a right of repurchase
ends up being a win because it converts ST to LT capital gains, anyway).

i.e. on day 0, the company is worth $10k, because the founder puts in $8k of
his own money, and the first 4 employees buy their grants for $500 each.

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fleitz
What a weird bill, it only affects a 4 month period, what is so special about
Sept 27, 2010 to Jan 1, 2011?

~~~
lukifer
One hypothesis might be that a more long-lasting bill is being drafted, and
this an interim solution.

~~~
anamax
> One hypothesis might be that a more long-lasting bill is being drafted, and
> this an interim solution.

A more realistic hypothesis is that they've figured out that a long term
approach is dumb. A bill that has to be renewed every six months gives folks
two reasons a year to "help" the legislators.

Remember, "reform" means "we need to get more money from supporters".

~~~
jbooth
That's 2009 thinking. You know how much work it is to round up 1,000 $2,300
donations?

Just get one guy to write a $2 million dollar check to the Chamber of Commerce
and you're good to go. After all, it's freedom of speech, according to the
Citizens United ruling.

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jeffreymcmanus
"The investor must not be a corporation" seems key. Do angel investors really
invest out of their own bank accounts or do they form LLCs for this?

~~~
danielayele
angels usually invest as individuals or via LLCs and super-angels and VCs are
usually structured as partnerships so the exclusion won't apply to most active
early stage investors.

~~~
anamax
> angels usually invest as individuals or via LLCs

LLCs are corporations.

I wonder what the bill actually says.

~~~
_pius
LLCs are _not_ corporations, at least not in the United States.

~~~
anamax
My mistake - I thought that the limited liability aspect was defining of
corporations.

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Towle_
Better idea: eliminate the capital gains tax entirely, forever and ever.

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lzw
A very obscure, complicated and short term bill that lets democrat congressmen
go back to their districts and run political advertisements that claim they
"passed legislation to help america's small businesses", etc.

Minimal effect, and on top of it, it is overwhelmed by bills already signed
that do significant damage to the economy. For instance, the bill that
massively increases the size of government, putting a permanent burden in
taxation or inflation on the economy that Obama claims will "Stimulate" it.
Making things more expensive and preventing businesses from expanding is not
stimulative. Adding more workers to the government payroll is a drain.

~~~
roc
> _"For instance, the bill that massively increases the size of government,
> putting a permanent burden in taxation or inflation on the economy that
> Obama claims will "Stimulate" it."_

Which bill is it that massively increases the size of government?

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harold
Healthcare? Without debating the merits of the bill, there's no doubt that it
represents a huge increase in government bureaucracy.

~~~
roc
What's "huge"? Similarly, what's the benefit of considering "expansion" of
government bureaucracy without the context of its budget impact?

i.e. Is it meaningful to loathe an _increase_ in the _size_ of government if
the effort will _reduce_ the net _cost_ of government?

e.g. Suppose we could hire a thousand accounts at a hundred thousand dollars a
year to go over the defense budget with a fine-toothed comb. If the effect of
adding these accountants was a cost reduction of several billion dollars per
year, have we _expanded_ government?

Looking at one side of the equation it's trivial to see that we have. But
looking at the whole equation, in context, it's just as trivial to see that we
haven't; not in any practical, useful sense.

So pardon me if I'm deeply skeptical of people arguing about only one side of
the equation and with subjective measurements to boot.

~~~
rick888
"i.e. Is it meaningful to loathe an increase in the size of government if the
effort will reduce the net cost of government?"

When has increasing the size of the government EVER reduced the net cost?

"Suppose we could hire a thousand accounts at a hundred thousand dollars a
year to go over the defense budget with a fine-toothed comb. If the effect of
adding these accountants was a cost reduction of several billion dollars per
year, have we expanded government?"

The question is: If they hire these accountants and they don't reduce the
overall cost by several billion dollars, can we fire them? Also, who decides
how long we are going to wait and see if they will be successful..and how long
would be considered successful? 1 year? 5? 10?

My other problem is that the Democrats will never admit when something just
doesn't work. If a tax hike fails to improve the economy, we either didn't
increase taxes enough (or fast enough) or the economy is so bad because of
Bush that anybody in their position would have a problem. The faithful
Democrat voter believes this crap and we get to keep repeating things that
have already been shown to fail.

~~~
roc
> _"When has increasing the size of the government EVER reduced the net
> cost?"_

Isn't that exactly what the CBO has estimated as the result of health care
reform? A reduction in the deficit despite the increase in scope (and thus
surely number of desks) of government?

> _"The question is: If they hire these accountants and they don't reduce the
> overall cost by several billion dollars, can we fire them?"_

I was making a point about the whole equation. If you absorbed my point you
would already know that my answer is an unqualified "absolutely".

> _"If a tax hike fails to improve the economy"_ No-one has proposed that tax
> hikes will improve the economy. Tax hikes are proposed to reduce the
> deficit. Which, by definition, would depress the economy.

I have to tell you, it's pretty difficult to talk to people who are so certain
they know what the other party is thinking and how they will react.

~~~
rick888
"Isn't that exactly what the CBO has estimated as the result of health care
reform? A reduction in the deficit despite the increase in scope (and thus
surely number of desks) of government?"

I don't know if I believe it. I would have to see the numbers. For years,
people have claimed how great France has been with it's many social programs.
Now, after creating a society that is dependent on these programs, they can't
even cut it a little bit (because they are running out of money) without
violent riots in the streets.

Also, Even though the deficit is reduced, overall quality has also been
reduced. I have many relatives in Canada and they all come over here for any
major surgery because of the waiting lists.

Greece is very similar. I've heard from many Democrats that the reason it's
doing so poorly is because they didn't get enough in taxes (not the ridiculous
social programs that just don't work in the long-run). This is exactly what I
am talking about.

"If you absorbed my point you would already know that my answer is an
unqualified "absolutely"."

You say this now..and it does sound great. But reality shows that it never
happens this way. Governments are generally very inefficient and bloated. They
also have no incentive to save money since it all comes from the taxpayers.
Running a successful government and a successful business aren't really that
different.

If you get funding from the government and you spend less, guess what happens?
You get less money the next year...so most will spend it all, even though they
don't need to.

"I have to tell you, it's pretty difficult to talk to people who are so
certain they know what the other party is thinking and how they will react."

The best way to predict someone's future actions is to look at what they've
done in the past. This is because for the most part, people don't change. This
logic also applies to future spouses, friends, and bosses. I would really like
the Democratic party to prove me wrong.

It's not difficult to talk to me. You just don't have a very good convincing
argument.

