This section discusses Employee Stock Options (ESO), both non-qualified and incentive stock options (ISO), also called statutory options. With the exercise of ISOs, arises the alternative minimum tax (AMT) which is discussed in a series of articles.
Taxation of Stock Options Transferred Pursuant to a Divorce - intermediate:
A Newsletter (November, 2006) discussing the taxation of stock options transferred from the employee spouse to the non-employee spouse, pursuant to a divorce.
Subsequent Capital Losses Cannot Offset AMT - intermediate:
A special edition Newsletter (May, 2006) discussing the Merlo Tax Court case. The court disallowed the carryback of an AMT capital loss to offset an AMT capital gain in a prior year.
February, 2005 - IRS Crackdown on Executive Stock Option Tax Shelters*
A memo discussing the IRS tax shelter settlement initiative involving employee stock option transfers by executives to their family-owned entities.
January, 2001 - Employee Stock Options - A primer - Part 1 - advanced*
A hot topics discussion of the tax consequences of owning employee stock options.
February, 2001 - Employee Stock Options - A primer - Part 2 - advanced*
A continuation of the January, 2001 hot topics discussion of the tax consequences of owning employee stock options.
Taxation of Incentive Stock Options at the Time of Sale - intermediate*">
An FAQ (11/01) discussing how ISO stock is taxed under the regular system when they are sold.
Sale of Stock Acquired Through the Exercise of Incentive Stock Options - intermediate*
An FAQ discussing the rules surrounding the sale of stock acquired by exercising an ISO.
November 26, 2000 - Tax Planning With Options - Part 2 - intermediate*
An FAQ dealing with Incentive Stock Options and tax strategies on how to minimize their adverse tax impact.
November 12, 2000 - Employee Stock Options – Year End Planning - Part 1 - intermediate*
An FAQ warning of the tax problems associated with employee stock options.
Incentive Stock Options
Recent Congressional Fix to the ISO AMT Tax Trap - intermediate*
An article describing the AMT Credit refund legislation inacted in December, 2006.
ISO/AMT Alert: IRS Issued Notice 2004-28* (March 26, 2004), warning Taxpayers of severe penalties for frivolous tax return positions.
IRS has aggressively attacked promoters who are advising taxpayers to misreport their income in a manner contrary to settled law with respect to the income generated from the exercise of employee stock options. IRS lists several well-publicized promoter theories and warns taxpayers they could face penalties, including civil fraud and possibly criminal fraud in connection with their tax returns, unless those returns are amended immediately.
The Notice appears to target the Isaacson Law Firm and others who aggressively and publicly promote some of the theories described in Notice 2004-28, including the notion that contrary to the express language in IRC Sec. 83 (a), employee stock options may be discounted if there are restrictions on the sale of the stock, even if those restrictions are termporary. See Isaacon's newspaper comments. IRS calls these theories "frivolous."
Selling Stock After Early Exercise of an ISO - intermediate*
An FAQ analyzing the interplay between the early exercise and Sec. 83(b) election, and the holding requirements for stock acquired through the exercise of an ISO.
Incentive Stock Options and the Alternative Minimum Tax
April, 2004 - ISO/AMT News: On April 12, 2004, Bankrate.com wrote an extensive article regarding the AMT impact on taxpayers entitled Middle-Class Taxpayers Caught In Tax Trap Set For The Wealthy. The article also deals extensively with the AMT's impact on incentive stock options. A must read for those caught in this trap.
February, 2002 Hot Topics - Exercising ISOs and the AMT - The Dual-Basis Concept* - advanced A discussion involving the basis adjustments for regular tax and AMT purposes when an ISO is exercised and the stock is sold.
Using the AMT Credit in Future Years - intermediate An FAQ (10/01) discussing how the AMT credit applies in future years.
September, 2001 Hot Topics - ISOs Meet the AMT, part 2* The second part of my Tax Notes article dealing with the AMT as it affects incentive stock options. This article contains proposals to change the current law.
August, 2001 Hot Topics - ISOs Meet the AMT, part 1* The first part of my Tax Notes article dated June 18, 2001 dealing with the AMT as it affects incentive stock options. The article traces the history of the AMT and incentive stock options and discusses what how various tax code sections combined to create an absurd result in which tax tax on stock received through the exercise of incentive stock options may equal several times the current value of the stock.
January 31, 1999 - Stock Option Path to Riches - part 2* - intermediate An FAQ discussing statutory stock options and the alternative minimum tax.
Non-Qualified Stock Option
January 1999 - Stock Options* - advanced January Hot Topics discussion of statutory and non-statutory stock options and how to minimize the tax consequences.
January 17, 1999 -Stock Option Path to Riches - part 1* - intermediate An FAQ involving non-statutory stock options.
NOTE: Employees who exercised incentive stock options (ISO) in the year 2000 and who now face a large alternative minimum tax (AMT) liability should check out reformamt.org - a group of taxpayers seeking to modify the AMT rules as they apply to ISOs. Due to the efforts of reformamt.org, the following bills have been introduced into the House and Senate. Both seek to retroactively mitigate the AMT rules as they apply to ISOs exercised in 2000. S. 1324 and HR 2794 unfortunately, these bills never made it into law.
Lawsuits Against Brokers
We are currently engaged in a series of lawsuits against stock brokerage firms, through NASD arbitration, who never advised, or improperly advised, their clients about the tax consequences of exercising Employee Stock Options. If you were the victim of bad advice, or no advice, please contact us for a free evaluation of your case (firstname.lastname@example.org).
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