Yes, this is what is being criticized. Other investors have no ability to do this, and there is little to know what to verify that the stock that was purchased was actually fairly evaluated. If it wasn’t then he was able to invest far more money tax free than should be allowed.
I'm not quite sure I follow. Most people who work for a startup (<10 people) and receive stocks get a similar deal. I've had to buy exercise options at previous companies. I also know people who have had options for $0.10/share for stocks that were then trading at $1.00/share after IPO.
If I worked at a startup pre-Series A, I got 1000 shares at $0.001/share, and then 1 year later they got a Series A and my shares became valued at $0.01/share, and then in a few more years we IPO'd and my shares became worth $100/share the IRS shouldn't have the ability to say "woopsie, yea, you actually paid too little taxes because that company that succeeded was actually worth way more than we expected back when it looked like it was going to fail"
That's just my opinion. I'm not sure if I'm misunderstanding something here. A startup is a high risk prospect. If you buy shares of a startup you're essentially putting money into a shredder in hopes that people pay you a bunch of money to play with the confetti. When a pre-Series A startup offers me "$50k/year in stock options" I instantly value that at $0/year in income mentally because there's no guarantee for any return. Its like options trading penny stocks.
Sure, start ups are insanely risky, but that doesn't mean stock in them can't be incredibly undervalued, and often is. Any tax incentivized investment plan, that allows investment in private companies, whose worth is going to very difficult for the government to judge, given there is a lack of public bids on them, is ripe with opportunities for fraud.
