However, Roth IRAs specifically are a tax shelter and have contribution limits, so valuations matter a whole lot for them (difference in $0.01 per share vs $0.001 per share would be a difference of $500M vs $5B today). That's why I think illiquid (or non-market cleared) securities should not be allowed in Roth IRAs.
That + a cap on tax shelter would solve the issue, if it needs solving.
Perhaps also prohibit equity from any source where you aren't arms length.
Is it?
If Elon Musk forms a corporation tomorrow, its market value is more than $0 before he does a single thing with it.
And that’s all the IRS should care about for Roth contribution limits: market value.
If I buy 1000 shares of PayPal from my mom for $2000 (mkt value: a lot more!) and put that into my IRA and tell the IRS that $2000 is the price we agreed (in the marketplace of the dinner table).
More importantly, acknowleding that very few companies may have value at inception due to the value (and commitment) of their founders' time doesn't make it any easier to systematically value that time. To legally enforce this, you would have to have valuation and audit service providers who do this - creating a bureaucratic hurde that every founder - famous or not has to go through - just to start a company.
It is my opinion that the cost of doing this - in reducing or slowing down the number of companies started and the lost taxes as a result - would significanty outweigh any gain in taxes from taxing the notional value of Elon Musks's presence as part of his own company.
All laws that apply to humans, particular compliance related laws, have significant second order effects. The second order effect of taxing the popularity of folks when they start a company is that thousands of less rich, less popular, less privileged, and less confident first time founders will face an additional hurdle when starting a business and they may never start one, never get rich through one. Ultimately, inequality would likely increase and rich established founders like Elon Musk and Peter Thiel would likely be more entrenched and benefit more from this, not less.
If there’s anyone stupid enough to value such a company at more than $0, Elon should sell that company and just start another one. Infinite money machine. He should call it Bitcoin or NFT or something similar...
I mean, people throw their money at companies that actively burn money with unlikely prospects of overcoming their death spiral. One that hasn’t even started should at least be worth much much more than those.
There is no tax gimmick involved in that part. If you require entrepreneurs to buy shares of their own company for large sums of money on the day they start the company, it would dissuade many entrepreneurs. On the day I incorporated my company in Delaware, my debt exceeded my assets and the startup was going to be my only profession.