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Taxation

Backerville’s structure is designed to optimize for tax efficiency while maintaining full compliance with applicable tax laws and regulations across jurisdictions.

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📋 Overview

Backerville Taxation Framework
This page outlines tax considerations for various types of transactions within the Backerville ecosystem. While general guidance is provided, each member should consult with their own tax advisor as individual circumstances may vary.

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🔑 Key Tax Principles

Deferral

Tax recognition typically deferred until liquidity events occur

Pass-Through

Village structures designed as pass-through entities for tax purposes

Character Preservation

Preservation of capital gains character where applicable
Backerville’s structure emphasizes these core tax principles:
The Backerville structure is designed to defer tax recognition until liquidity events occur. By utilizing promissory notes rather than immediate share transfers, contributors can typically defer taxation until an actual liquidity event generates proceeds.
Villages are structured as pass-through entities (typically LLCs taxed as partnerships) to avoid entity-level taxation and allow tax attributes to flow directly to members in the most efficient manner.
The structure aims to preserve the beneficial long-term capital gains character of startup equity appreciation, rather than converting it to ordinary income or short-term gains.
Multi-jurisdictional considerations are incorporated to minimize unnecessary cross-border tax complexity while maintaining compliance.

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💼 Tax Treatment By Transaction Type

  • Promissory Note Contributions
  • Village Unit Receipt
  • Rebalancing Transactions
  • Liquidity Events
Promissory Note Tax Timeline
The contribution of a promissory note to a village is generally structured to be a tax-neutral event under most jurisdictions. Since the contributor is promising future delivery (rather than making an immediate transfer of shares), there is typically no realization event at contribution time.
When contributors receive village units in exchange for their promissory notes, this transaction is typically structured to qualify as a tax-free exchange under Section 721 (U.S.) or equivalent provisions in other jurisdictions.
The contributor’s tax basis in their village units generally equals their basis in the promised shares (often the exercise price of options or purchase price of shares).
In some cases, certain contributions may trigger taxation:
  • When shares have already significantly appreciated
  • When contributions are made to villages in different tax jurisdictions
  • When special tax elections are made by the contributor

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🏦 Super Fund Tax Considerations

Super Fund Tax Structure
The Super Fund is typically structured as a partnership for U.S. tax purposes, allowing for pass-through treatment of income, gains, losses, deductions, and credits.
The Super Fund is designed to minimize Unrelated Business Taxable Income (UBTI) for tax-exempt investors through careful structuring of investments and use of blocker entities where necessary.
For non-U.S. investors, the Super Fund’s investments in private companies could trigger Passive Foreign Investment Company (PFIC) rules, requiring special reporting and potential tax consequences.
Super Fund investors receive Schedule K-1 (or equivalent forms outside the U.S.) reporting their share of the fund’s income, gains, losses, deductions, and credits.

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🌎 State & International Tax Considerations

  • Multi-State Operations
  • International Members
1

Nexus Analysis

Determining which states have tax jurisdiction over the village
2

Apportionment

Allocating income across multiple states with different tax rules
3

Composite Returns

Filing options that may simplify multi-state compliance for members
4

Withholding Requirements

State-specific withholding on distributions to non-resident members

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📄 Tax Reporting & Documentation

Annual Reporting

Schedule K-1 or equivalent for village and Super Fund members

Transaction Reports

Specialized reporting for contributions, distributions, and rebalancing

FIRPTA Documentation

Special documentation for real property interests

International Reporting

Cross-border transaction documentation and treaty claims

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Tax Documentation Standards

  • Village Members
  • Super Fund Investors
  • International Members

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Required Documentation

  • Annual Schedule K-1 (Form 1065) or foreign equivalent
  • Transaction-specific gain/loss statements for distributions
  • Form 8949 supporting information for tax return preparation
  • State-specific tax forms for multi-state operations

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💡 Tax Planning Opportunities

Strategic timing of promissory note contributions can help optimize tax outcomes, particularly when contributing shares from different tranches with varying tax bases and holding periods.
For contributors with significant holdings, custom entity structures (such as Single Member LLCs) can be used as contribution vehicles to enhance privacy and simplify future estate planning.
Village units may be eligible for charitable contribution, potentially generating tax deductions while achieving philanthropic goals.
Village units can be incorporated into estate plans, potentially qualifying for valuation discounts and facilitating wealth transfer to future generations.

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📚 Compliance Resources

Backerville provides members with tax resources, but does not provide tax advice. All members should consult with their own tax advisors regarding their specific situation.

Tax Guide

Comprehensive guide to Backerville tax considerations

Advisor Network

Access to tax professionals familiar with the Backerville structure

Documentation Portal

Secure access to all tax-related documents