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Taking Stock of Stock Based Compensation

7th October 2021

Matthew DeMello:  

What is stock based compensation? Let’s start with that basic question. 

David Chamberlain:  

Stock based compensation is any type of compensation that a corporation gives to its employees that is based on stock or potentially stock options of the company. So it could be restricted stock, could be stock options. 

The typical stock option plan, if we go back later on, we’ll go through the history of all the different cases that have taken place over the years. If we go back to Xilinx, these were the typical stock option plans. They were at the money options, meaning: an option is the right to acquire the stock at a fixed price sometime in the future. And the fixed price for at-the-money options is the same as the current stock price. So they will only make money off of an option if the stock price goes up.  

So the typical case was at-the-money. They would have a vesting period, so you would not be able to exercise your option until you worked at the company for certain number of years, such as let’s say three years. And then after that three years is up, you can exercise the option at anytime that is put up the money for the old stock price and receive the stock back, you generally have maybe 10 years to do this.  

There’d be a term once you do it, it would typically be a cashless exercise. So you would immediately sell the stock after you exercise the option and the company would help you do this. And the reason you would do it is that, in theory, actually holding onto an option as long as possible, if you’re an option investor in the real world, you would either hold onto it or sell it. You wouldn’t exercise. And until the end of the term. But employee stock options can’t be transferred, so people will do it when they need the money when they want to diversify.  

One other thing to point out though, is again, Xilinx was 20 years ago and stock options were what companies would do. Nowadays, many companies are doing restricted stock units. And in that case, they give you the stock itself but again, there’s a vesting period. So you can’t sell the stock until the vesting period is over. If you leave the employment, you forfeit the stock. Unlike options, which will only be valuable if the price of the stock goes up, those are always going to be worth something,  

Matthew DeMello:  

So we’ve got a good idea of how they work right there. What makes a stock based compensation and attractive incentive for both companies and employees?  

David Chamberlain:  

Yeah, It’s a great question. So from both the perspective of the company and the employee, it’s a way of uniting their interests. It gives the employee a stake in the success of the company – a very real stake in the success of the company, and that should motivate them to work better and just make everything better for the employee. There’s also the element that stock options are kind of sexy. There are dreams of having great wealth. If the company that you work for just goes through the roof in terms of its stock market cap, then you can make that great wealth. Of course, you could just go out and buy the stock. You don’t naturally need to get it as compensation, but there you go. [Laughs.] 

From the employer perspective, it also has the advantage of preserving cash. They don’t have to pay cash compensation. To the extent they provide options or restricted stock for a startup company in particular, who tend to use it stock based compensation a lot.  

Although of course the big ones, Facebook, Amazon, they all use it. But for startup companies, that cash could be so important. Final thing for the employer: If we go back in history again to before 2006, a great advantage of stock options was that they didn’t show up as an expense on  the company’s financials. That is at-the-money options were treated as though they had zero value because there was no spread between the value. In fact, they didn’t have zero value. In fact, they did have value because of the upside potential, but before 2006 that’s how accounting did it.  

They said, “Oh, no, zero.” That changed after 2006. Now you need to use fair market value of the option, which is, remember I said, a lot of companies are doing restricted stock units now.  

Well that’s actually the reason why it used to be that stock options were the only way to avoid an expense on your statement, because stock always had intrinsic value. So it was always compensation that was measured on your income statement. But now since whether it’s options or actual stock, they’re all going to hit your bottom line for financial accounting purposes, it can choose and prefer stock often. 

Matthew DeMello:  

Now issues arise at this point from stock based compensation from a transfer pricing lens. Can you talk a little bit about what happens at that intersection? 

David Chamberlain:  

So R&D cost sharing we’ll get to later when we get to the Altera case, that gets all the attention. But in fact, stock based compensation as a transfer pricing issue, is broader than that. 

Anytime that a company that has options provide services that are going to be done on a cost plus basis, where you’ve got to figure out what the costs are that are in it. And in fact, even if it’s not cost plus, any other comparable profits method or analysis is going to be operating profit after all expenses, including a stock based compensation. So it matters in every transfer pricing area for comparability purposes – right? Transfer pricing is all about when you’re applying CPM, it’s all about finding comparable companies and benchmarking your results, your tested party results, against those comparable companies.  

So the comparable companies are using GAP they’re using generally accepted accounting principles. So that means you should use GAP presumably for your tested party for the taxpayer themselves as well in general transfer pricing areas, as we’ll see in R&D cost sharing. On the other hand, the tax deduction approach is often used. So what happens under GAP is you value the options on the date that the option is granted and you amortize them over the vesting period. So you get the value of the option, amortize it over the three years that it vests and take an expense each year, that’s GAP.  

But for tax, the rule is quite different. The rule says for options, as opposed to restricted stock, the rule is you don’t value it until the exercise date. And that is the exercise date of the option. And then it is the spread between the price that you have to pay for the option and the value on that date. Now that could be years later, that could be well after you performed the services. And from an economics point of view, that is really an investment decision. The fact that you can continue to hold the option after it vested, it was an investment choice and shouldn’t in my opinion, be considered compensation for the increase in value after that.  

Matthew DeMello:  

Right. Of course. Now, if we could take just one minute there to give a little summary:  

Stock based compensation also known as share-based compensation or equity compensation is a way of paying company members with equity in the business, ranging from employees to directors to executives. While it’s no surprise that stock based compensation is a very attractive incentive for both companies and employees, it can create transfer pricing, flare ups, which draws even more attention to cost sharing agreements and intercompany agreements as a whole.  

Now professor, how has BEPS impacted the treatment of stock based compensation?   

David Chamberlain:  

Yeah, it’s an interesting question. The answer is surprisingly little!  

From the initial BEPS action plan in 2013, as folks presumably know, BEPS was all about base erosion and profit shifting. It was a global project led by the OECD where all the countries of the world got together and tried to update the rules, the international tax rules, including transfer pricing rules. And that started in 2013. It’s ongoing now. People may have heard of BEPS 2.0 or the pillars that are going on right now to try and get e-commerce companies in particular. But as I said, nothing has really happened.  

The OECD studied the issues back in 2004, but after BEPS, the OECD guidelines on transfer pricing only mentioned stock based compensation once and that’s talking about accounting comparability. They don’t even talk about it when they deal with cost sharing agreements, or as the guidelines called cost contribution agreements. And that may be partially that under the OECD method, cost contribution agreements are actually done based on the value that is provided by the R&D service provider rather than just on the cost.  

So we go back to kind of same that we have with cost plus services where the value is the economic value.  

Matthew DeMello: 

I was about to say, in one of your last answers where we were bringing up GAP rules versus tax rules, I’m sure we’ll hear from some listeners who typically tune into the tax provision podcast that we have, but now we’ve also invited R&D to the table. And now we have a nice, happy family of listeners who have crossed between three different podcasts. [Laughs.] Welcome everyone!  

Now what makes stock based compensation, especially contentious in the US? 

David Chamberlain: 

R&D cost sharing is, as I said, the big issue. And R&D cost sharing really is profit shifting generally and it is generally done by US companies. So R&D cost sharing will be between a US parent company and its subsidiary in a low tax jurisdiction. Now, why is it so contentious? Part of it is that the tax deduction rule is so very different than the GAP rule than the accounting rule. And that can be a huge, huge difference.  

When it comes to stock options, it’s altogether possible that the valuation using Black-Scholes model for accounting purposes is a thousand times smaller than the exercise date value for tax. And in fact, the exercise state value is so large that some of the most successful companies, because it’s the most successful companies that will have the largest spread at exercise. Back in the day at least, some of the most successful companies actually had losses for tax purposes. Now we’ve gone to restricted stock units. There’s nowhere near the huge difference there because of the value of the stock may go up. Tesla’s stock went up by 10 times from the start to the end of 2020, but not a thousand times. So in some sense, it’s less contentious going forward than in the past. 

Matthew DeMello: 

I think a name that, as I mentioned before, listeners will probably recognize from our Hot Off the Press podcast is Altera. That case that just recently came to a close, but stock based compensation was a main area of dispute between the two parties. Can you tell us some more about what was at issue in that case?   

David Chamberlain: (17:22

So that’s a great question. That is the multi-billion dollar question. Yes. [The case] covered the years 2004 and 2007 for one semiconductor company Altera, and it involved $80 million worth of tax, but we’re really talking billions.  

So I looked at Facebook’s 2019 financial statements, and they took a charge to their tax as the cumulative expense that they have to recognize – now that Altera came out unfavorably for the taxpayer – a cumulative expense of $1.1 billion in tax. And that’s just Facebook, there are lots of other companies.  

So what is R&D cost sharing? R&D cost sharing is joint development of intangibles for separate exploitation. And as I said, a moment ago, it’s typically between a US parent company that has a lot of preexisting and tangible property. And at some point in time, a brand new subsidiary that has no operations and is based in a tax haven. And over time, the subsidiary will grow in the amount of operations it has, but it doesn’t bring any existing intangibles to it.  

So there are two levers that US taxpayers use to kind of shift profits to the low tax jurisdiction. One of them is by trying to minimize the amount of the so-called buy-in or in the terminology of the current cost sharing arrangements, platform, contribution, transaction – PCT – if they can lower the size of that payment, that the tax haven has pay to the U S company to get access to that pre-existing and tangible. That can be huge, right? The lower that number is the higher. The profits will be abroad in the tax haven, lower in the US.  

That’s the big issue. That’s the issue in Veritas, Amazon, and so on: cost sharing, but a smaller lever is the ongoing cost sharing of R&D costs and the cost sharing transactions, they’re called. So what you have is you have the companies, the R&D employees, the ones who are doing the R&D typically or frequently, that’s all going to be in the US or the majority of it’s going to be in the us. And they’re going to be paid with stock based compensation.  

You’re able to deduct all of that in the US and the issue is: Do you have to charge out some of that stock based compensation? Do you have to put it in the cost pool as we call it for cost sharing and charge out a share of that? The taxpayer is arguing that they don’t have to charge out any of those costs or that that was Altera’s argument. I personally believe that the numbers should be the GAP number, because that is the comparable number and arm’s length is supposed to be the same thing that unrelated parties would do. And GAP, I believe is what they would tend to do. We’ll talk a bit about that in a second, but the tax deduction is not something that unrelated parties would do, I believe.  

Matthew DeMello: 

Professor Chamberlain, what arguments have been made by taxpayers with cost sharing agreements and by the IRS in this dispute? 

David Chamberlain: 

So, one thing I want to mention first is that when I was researching for this program, I was shocked to learn that these were restricted. Because in the earliest cases 20 years ago they were not, as I said, all the companies did with stock options. But [as with] Altera, it’s not clear exactly what the balance was, but definitely some of it was restricted stock. And Facebook, I told you, I looked at theirs and this 1.1 billion reserved they took? They’re entirely restricted stock units.  

Let me talk about the arguments in a second and explain why that shocked me.  

So the overarching argument that taxpayers make is that unrelated parties do not and would not share stock option expense. That that is an expense that only the US parent in this case would bear. And if the tax haven subsidiary and the US parent were in a joint development arrangement with each other, the tax haven subsidiary would not agree to share the US parent’s cost.  

And there was evidence, and there was evidence from arm’s length comparables. Now, how good was that evidence? How comparable were those arrangements? Eh, that’s.. kind of debatable. The IRS has said, they’re really not comparable at all. The taxpayers said they really are comparable and they really don’t share stock options.  

So when I looked at this 20 years ago, I was one of the ones who studied the agreements between unrelated parties that were filed with the Securities and Exchange Commission, agreements that were material to a company. And these are agreements, joint development agreements, and other types of agreements between unrelated parties. And I was convinced that in fact, it was true that parties did not agree to share each other’s stock based compensation expense. Now, some of that may be because in many cases, both parties did some R&D and both of them issued stock options to their own employees.  

So they agreed we’ll each bear our own R&D and it kind of comes out in a wash. But 20 years ago, the evidence did point in that direction.  

Now I get to why I’m shocked about the RSU, about the restricted stock units. Some of that evidence 20 years ago was simply that they agreed to follow generally accepted accounting principles. And back before 2006, those accounting principles said for at the money options, it was zero. But even back then, if you had restricted stock, the amount for accounting purposes would have been the value of the stock. 

So I actually recently, after joining Cal Poly’s faculty, tried to look at this again and went to the SEC filings. And I found that those SEC filings are now redacted. They don’t provide you the information that they did 20 years ago. They use this term full-time equivalent rate, which is a fixed rate for each hour that an R&D employee engages in. So we don’t know it’s a black box that might include stock based compensation expense. We don’t really know, but anyway, so that’s the overarching one arm’s length comparables.  

Matthew DeMello: 

And as we were laying the groundwork right there, the issue has been the subject of litigation for over 20 years, culminating in this most recent case, Altera versus the IRS. What can you tell us about the history of the litigation and the final outcome in Altera?  

David Chamberlain: 

It goes back 20 years. And the earliest case was under the 1968 regulations. Seagate was the company that was in litigation. The IRS actually won a summary judgment. Seagate tried to say, “Look, this is ridiculous. Of course, we didn’t have to carry this.” The court said, “Yeah, we do have to hear about this.” 

But the IRS backed off. What we heard in the community was that the IRS was arguing for option models. The Black Sholes model, what they use for accounting purposes now. And the sense they were getting was that the judge wasn’t interested in such a complicated model and was going to come out against them. They backed off. And they said, look now, by the time Seagate, by the time they backed off, there were the 1995 regulations. Those 1995 regulations, they were hoping would get them over the hump.  

Those regulations said that all costs had to be shared, but they were not specific about stock based compensation. The IRS in this case argued the tax deduction amount, a spreaded exercise. The Tax Court looked at the arm’s length evidence; some of the evidence that I myself had prepared 20 years ago – I wasn’t the only one of course, many people came up with this evidence – of what arms-length parties did. And the Tax Court said, “No! Arm’s length parties and the arm’s length standard is overriding and whatever arm’s length parties do, that’s what you have to follow.”  

The Ninth Circuit saw it as a conflict between the arm’s length standard and the all costs requirement. And initially it was interesting case, the Xilinx case, where the Ninth Circuit or initially came out in the IRS’s favor and said costs trumps, because it’s more specific. But then they had a rehearing and the court flip-flopped and said, “No! Arm’s length applies in all cases.”  

Which is an important holding for transfer pricing in general, not just here.  

Now, the IRS wasn’t happy with this result. They lost Xilinx. Xilinx got away with not including any stock options in the cost pool, but the IRS did not acquiesce in that case. They disagreed with it, but they didn’t seek to take it to the Supreme Court. They didn’t litigate in another circuit or anything. They just said “No, we have new regulations out in 2012 that were extremely detailed and very specific that stock based compensation needs to be shared.”  

Now we finally get to Altera. So Alterra was a case that happened after the 2012 regulations. Altera decided that they were going to buck the regulations. They weren’t going to share stock options and they’re going to fight it. And in 2015, the Tax Court took it up under the 2012 regulations. And what they said to the IRS is, “You already lost this in Xilinx, we already found that sharing stock options was not arms length!” 
“…So you lose again. Moreover, we’re going to throw out those regulations entirely say that they’re invalid.” They also said that you didn’t do it right. You didn’t follow the rules for how you enact regulations.  

Now the Tax Court panel said that, and then the IRS tried to take it to the full Tax Court and the full Tax Court, 19 judges, unanimously agreed that it was not arm’s length to share stock based comp. Okay. Now, 2019, the IRS appealed the Ninth Circuit again in 2019 and they overturned the Tax Court overturned all 19 judges and said the commensurate with income standard that was added to the 42 regs in 1986, that it allows the regulations to impose a purely internal methodology for transfer pricing, where there are no comparables.  

So interestingly, even though in Xilinx, they had said, “Yeah, these comparables look good. And we think you lose on them.” They kind of, in this case said, “Well, you know, we’re not so sure about those comparables…”  

There was no discussion of restricted stock units, which I would love for there to have been and looking at the comparables and seeing where the comparables were probably stock options. And these were restricted stock units and also GAP rules had changed. So maybe the new agreements, if you were to find new agreements, would have gone in the IRS’s favor.  

But in any case, the court said, “We don’t care what the comparables say. We don’t think they’re comparable. We’re going to uphold the IRS regulation.” The IRS regulation says that you do it based on the tax deduction, unless you make an election for options to do it on the accounting method. So they won, the IRS won, the Ninth Circuit refused to rehear the case when Altera asked them to and the Supreme Court refused to take the case.  

So it is the law of the land: You have to share stock options, at least in the Ninth Circuit. So it’ll be interesting to see if some of the other circuits surrogate or other circuits come back first, if taxpayers take it up in another circuit. The full Tax Court said one thing and the appeals court said different things. So they may well roll the dice and see what another circuit says.  

Matthew DeMello:  

In speaking of the future, and as you put it, interesting is the only word, especially if you’re a seasoned transfer pricing professional, this case might make, just on everything you described, might make a great Netflix show.  

And that’s even before we get to… this is where it takes like a Wes Anderson turn: You mentioned the 19 judges and the Ninth Circuit that turned them down – wasn’t it that one of the judges passed away?   

David Chamberlain:

[Laughs.] Yes.  

Matthew DeMello: 

Yes. So right there, you have, you have all the makings of a very interesting TV show. I don’t know if you could get anybody to sit through transfer pricing, but they said the same thing about chess and The Queen’s Gambit and look at that.  

David Chamberlain:  

True. If you have someone who can write this, like Queen’s Gambit may, may well have it. 

Matthew DeMello:  

Yeah. [Laughs.] 

David Chamberlain:   

The first judge died and they published the ruling with that judges as one of the ones who decided in favor of the IRS, that’s right. Then they said, well, maybe we shouldn’t have done that because the opinion didn’t come out first and they withdrew it. And it’s the thing they did that because of her an entirely different case involving the same judge, the court, I think it was the Supreme Court said, “No, you can’t, you can’t do it.”  

Matthew DeMello:  

Yeah.  

David Chamberlain:  

So a new judge came on and the same answer was found.  

Matthew DeMello: 

And one of the things I love about podcasts is in one podcast episode, albeit an in-depth discussion at that, but you can get an entire season out of Netflix in terms of the drama. [David laughs.] 

But let’s start from that part of the movie where we’re at now, we’re, we’re a little bit outside of this decision. It’s been awhile. We’ve seen an immediate effect on businesses, but the movie is not over.  

Tell us about how you’ve seen this affect business, both nationally and around the globe. And what would cost sharing agreements look like moving forward from here?   

David Chamberlain: 

It was never about business per se. It was always about tax is one thing, right? So the businessmen go on and do what they do. And the tax people are the ones that are dealing with this.  

Foreign multi-nationals, so foreign based businesses, they just shrugged their shoulders because this was always the US. They weren’t involved in this. 

US multinationals are going to take their lumps. As I said, Facebook reported a $1.1 billion catch up tax provision. I don’t know what the status is, how exactly that’s going to play out in terms of the IRS auditing them, or they make a self-help adjustment. I don’t know how that works, but this was always kind of a lesser issue. Remember I mentioned the buy-in issue before, and that is an even bigger issue. The 2011 cost sharing regulations, that is the temporary regulations at that point, were introduced this investor model. And many people thought it would kill cost-sharing agreements, because it seemed to not allow the tax haven company to earn anything more than just an investor’s return. They don’t get to really buy into the profitability of the intangibles.  

But we know from Facebook, which is in litigation right now, that at least Facebook and presumably other companies went ahead and continued CSAs, cost sharing agreements, and thought they could still get good results.  

What about BEPS and GILTI? I said BEPS didn’t directly address stock based compensation, but it did address profit shifting, right? That was what it was about.  

And the way that people got benefits from these tax havens subsidiaries, the tax havens are being shut down right. And GILTI, the global intangible low tax income thing says, even if you do manage to get profit into the low tax jurisdiction, the US is going to tax it anyway.  

So I don’t know what the answer is about BEPS and GILTI, and whether they have killed cost sharing agreements once. And for all, we’ll see that in the future.   

Matthew DeMello: 

That, as they say, remains to be seen. But just to backtrack a little bit in summarize a few points, we’ve gone over so far:  

As more and more companies expand globally, stock based compensation will be available. But if it’s not handled appropriately in cost sharing agreements, these beneficial incentives could create crossborder implications that could lead to audits, adjustments, and worst case scenario, legal examination. The recent Altera v IRS case demonstrates how MNAs and tax authorities butt heads around its inclusion in cost sharing agreements, and why taxpayers need to pay close attention to jurisdictional rules, especially in a post BEPS tax environment.  

Now Professor Chamberlain, the IRS recently published a legal advice, memorandum on cost sharing agreements and stock based compensation costs, which draws from the Altera case. Can you tell us more about this memo? What does it demonstrate about the IRS’s focus on this type of agreement, after this legal triumph? 

David Chamberlain:  

This memo, it’s a memo from the chief counsel to the IRS field, telling them how they should handle certain issues. They’re kind of somewhat minor issues, kind of side issues, except maybe the third one.  

They apply only to those cost sharing agreements where the parties did not share stock based compensation from the beginning, there are certainly a number of cost sharing agreements where they didn’t want to buck the regulations. They weren’t as brave as Altera, and they did decide to share stock based compensation. So the first question that was asked was “What is the proper year for an IRS adjustment in these non SBC, non stock based compensation, cost-sharing agreements?”  

And the answer that chief counsel gave was each year as it came. So you go back during the statute of limitations, look at each year and add it to the cost pool in the specific year.  

The second question had to do with these so-called reverse clawback provisions. Now, after the 2012 regulations came out, many taxpayers complied, they shared stock based compensation, but they put a clawback provision – not a reverse callback position, a clawback provision – in case the regulations were invalidated as they seem to been in the Altera Tax Court case.  

And what they said was they would undo all these options. Payments that had come from the tax haven, the US company would, would send that money back to the tax haven after the Tax Court win. So 2015 many companies went noncompliant with the regulations. They looked at Altera and said, these regulations are no good. We’re going to stop sharing stock based compensation, but some of them put reverse clawback provisions in their cost sharing agreements that said, if Altera is overturned and the regulation proves to be valid, we will go ahead and catch up in the year that it went and invalid, we’ll catch up the prior year SBC that we did not share and share it now.  

And so the second issue was if the new modified cost sharing agreement doesn’t specify if the IRS had come in and made an adjustment for stock based compensation, will they be required to double count it and make this true up adjustment under the contract, as well as bearing the cost of the IRS adjustment?  

And here they did the sensible thing, the chief counsel said, “No, no double counting. The IRS adjustment will count towards the amount that they need to clawback.”  

And that’s kind of a small issue, right?  

Matthew DeMello:  

Right.  

David Chamberlain:  

The third issue said, what about if the prior year is closed and can the IRS then make a stock based compensation adjustment?  And the first answer was no, [laughs]. Or not obviously, let’s say.  

If taxpayers did put in these reverse clawback provisions that puts the IRS in a good position and they can force the taxpayers to abide by them and go ahead and share the stock based compensation in the current year, catching up all those closed years. So they aren’t going to let taxpayers riggle out of those. If they were stupid enough to put them in their contracts, they got to do them.  

But maybe they weren’t so stupid. Maybe it’s a good thing they put this in because the IRS says, “Look, if there are too many closed years, you need to think about blowing up the entire CSA and saying that under 42-7I5, where cost sharing transaction payments are consistently and materially disproportionate, the IRS can blow up the agreement altogether and to say that in fact, the US parent owns the foreign intangible property that they thought the tax haven company owned. And therefore the US parent will get those profits, not the tax haven and they’ll make adjustments going forward forever.  

Matthew DeMello: 

Indeed, and incredible detail that we’ve been able to give our listeners throughout the show. Uh, that said, let’s just say the CFO’s asking and you’re the tax professional. Let’s boil this down. What do men need to take away about cost sharing agreements and stock based compensation from both the Altera case in the resulting IRS memo?  

David Chamberlain:  

Well, one thing is, if you do have it reversed clawback provision in your agreement, you better abide by it. You better make that adjustment.  

Even if you don’t, if you’re afraid of having your cost sharing agreement blown up, you should consider making a self-initiated adjustment for transfer pricing, even with respect to closed years. If you do not, if you, as the tax director have, or if you as the CFO have the appetite, you could go be prepared to fight this. You can expect the IRS to push back hard and even take it to court.  

Matthew DeMello:  

Is there any general advice that you have for MNAs navigating stock based compensation?  

David Chamberlain: 

As I said, it’s the businesses, what really matters not tax and multinationals should just do what’s right for the business. If it’s a good thing to compensate employees with stock based compensation because as we said, at the beginning of this, it aligns the interests of the company with that of the employees, especially the R&D employees. If that’s what you want to do as a business, keep doing it! And follow generally accepted accounting principles and let tax follow.  

Now, interesting question is if you have stock options, as opposed to restricted stock, you do have this election potentially where you can agree to do the cost sharing based on accounting principles, rather than tax principles and a lot of companies, as far as I know, I think it’s the majority of them decided to do tax. And I always thought that was weird. I always thought that it was strange that they were betting against themselves. The tax deduction could be huge if your company is extremely successful and well, by comparison, the GAP number is always going to be positive. You’re always going to have to share some, so that’s a downside if you don’t do well, the tax answer is better. But if you do incredibly well, you’re better off making the election.