Hi. A new corporation with $1M valuation

[misikoc]

I have a new corporation client that incorporated in Delaware with a $1M valuation. It is a software company.  the founder has 270000 shares at $2 per share.  The founder contributed $90000 in cash and the remainder $450,000 is sweat equity.  How do I account for this  sweat equity?  Can it be capitalized as a startup expense in which case it won't be taxable to the client or shareholder loan as the debit balance?  It does not qualify under section 351 because 70% of ownership in the corporation came from sweat equity of other shareholders.

[IRonMaN · Accepted solution]

Most folks try to wipe sweat off and pitch the towel because it isn't worth anything.  I think both tax and accounting rules value it as worthless also.