The Internal Revenue Service could be reading your emails without obtaining a warrant, according to a new document uncovered by a Freedom of Information Act request. In it, the IRS reveals that it still doesn’t believe people have a reasonable expectation of privacy in their emails.

Technically, emails are not yet protected by law under the Fourth Amendment, though a recent court case, U.S. v. Warshak, states differently. In this case, judges ruled that defendant Steven Warshak “enjoyed a reasonable expectation of privacy in his emails,” citing the Katz v. U.S. case that helped define what a search and seizure is under U.S. law.

Advocacy groups and Internet companies alike — including major email provider Google — all stand by that ruling. According to the American Civil Liberties Union, which made the FOIA request, the IRS’ Criminal Tax Division would rather seek out your emails using a subpoena.

Why does this enrage organizations like the ACLU? For some time now, advocacy groups have been pulling for a change to the Electronic Communications Privacy Act. The ACLU calls it “hopelessly outdated” — it was established in 1986, a time when telephone calls were a much more widespread way of communicating that emails. But nowadays emails are just as, if not more, prevalent than phone calls, and they include very personal information that people may consider “private.”

The ACLU notes that the ECPA only requires a warrant on emails that have been on an email provider’s servers for 180 days or less, but anything beyond that time frame and any message that has been opened does not require a warrant.

hat tip CNET; IRS money image via 401(K) 2013/Flickr

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Venture capital. Angel investors. Personal savings. All of these are common-knowledge ways to get your company the funding it needs to launch. But what about the IRS’s ROBS project?

When evaluating ways to fund our startup, Ascendify, my co-founder and I looked at all of the options available to us. One thing was clear — we were so passionate about making an impact in the recruiting industry with our talent acquisition platform, that we didn’t want anything (not even fundraising efforts) to deter us from bringing our solution to market. That’s when we discovered the ROBS project, or Rollovers as Business Startups.

In a nutshell, ROBS allows startup founders the ability to rollover 401(k) savings into their new corporation’s profit sharing plan to fund the business. The silver lining is that, by using ROBS, you can avoid withdrawal penalties and taxes usually associated with withdrawing your 401(k) early.

Entrepreneurs are inherent risk takers, and investing your life savings into your business is certainly one of life’s ultimate risks. One thing that made the decision clear for us was the notion of investing our retirement funds into our own business, instead of a public company that we have no control over on the stock market. And a lot of other entrepreneurs have realized this as well. In 2010, an estimated 10,000 businesses were launched using retirement funds. This created more than 60,000 jobs and added $8.3 billion to the economy, according to a survey from FRANdata.

According to firms dealing with these rollovers on a daily basis, the typical rollover amount falls somewhere between the $150,000 to $174,000 range. We’re thrilled with our decision to leverage the ROBS project. It allowed us to focus on listening to our customers’ needs, iterating the product, and deploying an industry recognized, award winning solution in less than a year. However, not every startup will fare similarly, so it’s not a decision to be made lightly.

In fact, without a solid plan in place it could be a dangerous path to travel. The IRS investigated ROBS plans from 2009 to 2010 and discovered this financing option for your business could be tricky. Three years after starting a business, many of the companies started using ROBS financing had already gone out of business. It’s tough enough to lose your business, but by rolling over your 401(k) into your company, you’re also putting your savings at risk. It was a scenario we definitely considered before moving forward with ROBS, and one any entrepreneur should take under consideration.

If you’re interested in using ROBS for your startup, here are some tips you should consider before rolling over your money:

Get a specialist

It’s important to have someone on your side who understands the law. We partnered with the firm Benetrends, but there are a few others like SDCooper and Guidant Financial Group that know the ins and out of the IRS laws and will facilitate the entire process for you.

The mechanism allowing for ROBS is the ERISA, or Employee Retirement Income Security Act of 1974, which allows employees to be responsible for their own retirement plans. Unfortunately, the ERISA is extremely complicated — and extremely easy to violate. In 2008, the IRS started to crack down on rollover violations. That’s why you should enlist a specialist who keeps close tabs on the changing regulations and mandatory IRS filings so you stay in good standing.

Offer employees stock

Whether your company has two employees or 200 employees, it’s important your workers understand they can purchase stock options. Some business owners using ROBS make stock transactions a one-time only affair, which can discriminate against new or less highly compensated employees. If you amend your plan to prevent other employees from purchasing stock after your ROBS funding is approved, this could get you into hot water with the IRS.

Most companies using the ROBS project to get off the ground won’t have much to worry about with few employees. But as your company grows, this is certainly one rule to keep an eye on. In our case, we’ve carved out an employee stock option pool to make sure our employees have a chance to participate.

Educate yourself and understand the risk

You don’t have to become an expert in IRS tax law, but you should know the bones of how the ROBS project works and where your money is going. After all, it is your business, and if you plan to use rollovers for funding, you should understand all the implications.

The ROBS project won’t be right for every startup or small business owner, but it was the right decision for us. If you educate yourself, get outside help, and stay compliant, it just might be the right means to kick-start your startup.

Have you used ROBS to fund your startup? Would you? Share in the comments!

Funding photo via Shutterstock

Lauren Smith is co-founder and VP of marketing of talent-acquisition platform Ascendify. A former advertising executive at three agencies, Lauren has launched global campaigns for major brands including Dell, Johnson & Johnson, and Comcast. You can connect with her on LinkedIn .

More than 53 million Americans, or roughly one in four active web users, visited tax-related websites in February for help with their returns.

Altogether, Americans raked up 1.4 billion pageviews in February across the top tax sites, according to analytics firm Nielsen. More Americans visited tax websites in February, historically the peak month for online tax activity, than in prior years.

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IRS.gov was the most visited tax site with more than 28 million unique U.S. visitors. TurboTax, from Intuit, came in close second with 25 million unique visitors, and H&R Block rounded out the top three with 19.5 million unique visitors. The latter noticed a 58 percent bump in year-over-year visits.

Web denizens, however, were especially interested in exploring their online tax options this year, as a majority flittered about the web and flirted with multiple sites. Nearly half of all visitors to IRS.gov later visited TurboTax in the same month, and 39 percent also jumped to H&R Block. And college-educated ladies were most likely to turn to the web for help with their taxes, according to Nielsen.

Photo credit: Dave Dugdale/Flickr

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

(Editor’s note: Petra Loer and Kurtis Handa are Managing Directors in WTAS’ Valuation Services practice. They submitted this story to VentureBeat.)

Some entrepreneurs consider 409A valuations a necessary evil.  But too many aren’t particularly familiar with this particular section of the corporate tax code. And while we realize tax law might not be red-hot cocktail party conversation, it’s something that should be top of mind for start-up owners.

409A valuations are most commonly performed to assist companies with setting the strike price for their employee stock options, which needs to be at or above fair market value.  The most common questions surrounding those are: “Do I really need a valuation?,” “How do I select an appraiser and why does it cost so much?” and our personal favorite “Why is my common stock worth so much?”

Let’s explore each one.

Do I really need a valuation? – Internal Revenue Code Section 409A regulates the treatment of “nonqualified deferred compensation” paid by a “service recipient” to a “service provider” for federal income tax purposes.  Nonqualified deferred compensation can take the form of stock options, stock appreciation rights, or similar instruments.  Here’s what you’ll need to consider when you’re determining the need for a valuation:

• The fair market value must be determined using “reasonable application of a reasonable valuation method.”
• A valuation needs to be performed by someone who is qualified (based on their knowledge, training, experience, etc.).  In most cases, companies choose to hire outside appraisal firms to meet this requirement.
• The valuation needs to be updated at least every 12 months, or more frequently if significant changes occur in the business between grant dates (such as new rounds of financing).

If your company fails to comply with 409A, your employees will be personally liable for immediate taxation – plus a 20 percent penalty tax, and potential interest payments.

How do I select an appraiser and why does it cost so much? – You’ll need the appraiser in order to comply with the first two points above. As for the expense, keep in mind that properly performing an appraisal and considering all of the relevant factors can take a considerable amount of time.

As you look for the right person, here are a few questions you should ask:

• What methods would you use to value the common stock? If there is a recent arms-length round of financing, the appraiser may be able to rely on the round to deduce common stock value.  The appraiser should consider using an option-pricing model (i.e., Black-Scholes, lattice, or Monte Carlo – depending on the complexity of your capital structure), the Probability Weighted Expected Return Model (or “PWERM”), or the current value method (which is only appropriate in limited circumstances).  In terms of fees, relying on a round generally costs less, and fees for companies with complex capital structures are generally more.
• How do you support your concluded marketability discount? The IRS will look for evidence that your appraiser considered factors specific to the company and data such as restricted stock studies, not just quantitative models.
• Have you been successfully reviewed by auditors?
• Can your valuation be used for both tax and financial reporting purposes?

Why is my common stock worth so much? – Our clients often want to understand what types of factors influence the value of their common stock.  As one would expect, any factor that increases the value of the overall company increases the value of the common stock.  However, there are other influential factors as well:

• Preferred stock participation feature and dividends:  Most preferred shares contain a conversion option that allows the owner to convert his/her preferred shares into common shares.  Some preferred shares, however, have a participation feature allowing them to share in any upside with the common shares without the exercise of the embedded conversion rights. In other words, they get their cake and eat it too.  The presence of this type of participation feature ultimately increases the value of the preferred shares and reduces the value of the common shares.  The presence of preferred cumulative dividends would also reduce common stock value.
• Sale/transfer restrictions: The presence of certain sale/transfer restrictions associated with the company’s common stock will reduce the stock’s attractiveness and, therefore, reduce its value.
• Transactions in the company’s stock:  Increasingly, private company shares are being traded in the secondary market.  If a recent transaction exists, the appraiser may need to consider this value in determining the fair market value of the stock, depending on the circumstances of the transaction (like block size, buyer/seller motivation, availability of information, etc.).

Private company common stock virtually always has value; therefore, obtaining a defensible appraisal is an important step in potentially saving you from unnecessary IRS challenges and saving your employees from unexpected tax and penalties.