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When issuing the first edition of a new book, some items are printed that are either in error or could be more clearly stated. Here are some of those items in Employee Stock Options. If you see other items you would like to bring to our attention, please send me an email to mgray@stockoptionadvisors.com.

1. For more details about employee stock purchase plans, see "Employee Stock Purchase Plans Compared To Incentive Stock Options."



2. Page 10. Incentive Stock Option (ISO) Second paragraph. "After the required holding period, which is twelve months…" should be "which is more than twelve months…"



3. Page 15. Employee Stock Options, 1st paragraph. "Employee stock options are the hottest employee benefit in high technology companies, but many people don’t understand the tax and investment implications of them."



4. Page 16. Employee Stock Options, 2nd paragraph, second sentence. "You are required to hold your shares for a minimum of twelve months…" should be "more than twelve months…"



5. Page 16. Third paragraph, fourth sentence. "This amount is withheld…" should be "Some tax is withheld by the brokerage firm, so do not be surprised if the check that you receive for the proceeds is about 60% of what you expected."



6. Page 26. Employee Stock Options, 1st paragraph. See #3.



7. Page 26. Employee Stock Options, 2nd paragraph, 2nd sentence. "You are required to hold your shares for a minimum of…" should be "You are required to hold your shares more than twelve months…"



8. Page 26. Employee Stock Options, 2nd paragraph, 3rd sentence. Should be "Should you exercise and sell within twelve months from the exercise date or two years from the grant date, you will create a disqualifying disposition. The gain on the sale, up to the amount of the spread at exercise, is taxed as ordinary income, similar to NQSOs."



9. Page 26. Employee Stock Options, 2nd paragraph, 2nd sentence. "…you will be taxed as ordinary income…" should be "they will be taxed…"



10. Page 27, 2nd paragraph, 5th sentence. See #5. (Tax is typically withheld at 28%, which is often less than the actual tax that will apply on the taxpayer’s income tax return.)



11. Page 58, item 16. Should be "How should I value the stock for my employer company that isn’t publicly traded?"



12. Page 60, table. ESPP, Date of Exercise, Alternative Min. Tax should be "N/A".



13. Page 73, item 16. See #11.



14. Page 74, Item 18, 3rd paragraph, 2nd sentence. Should be "The maximum rates as described at question 23 for the regular tax…"



15. Page 75, Item 19, 3rd paragraph and page 76, 2nd paragraph should be
    
    "Does the additional credit have much value? As usual, the answer is "That depends…"
    
    "Apparently, Congress is determined that taxpayers should not receive a tax benefit for their state income taxes and other exclusion items when determining the availability of the AMT credit carryover. The AMT credit not used on the previous year’s tax return could be reduced on the current year’s tax return."



16. Page 83, item 2, 2nd sentence. Should be "The effectiveness of this strategy…"



17. Page 85, bottom section. Should be "The three major risks…"



18. Page 85, bottom of page, add
    
    "3. If the underlying stock has not been held for more than one year before acquiring a put, the holding period of the underlying stock is canceled when an offsetting put is acquired, so the stock will have to be held longer to qualify for long-term capital gains or avoid a disqualifying disposition for stock acquired by exercising an ISO. The holding period starts over again when the put lapses, is sold or is otherwise closed out or eliminated. (Rev Rul 78-182, IRC § 1233(b).)
    
    When a stockholder sells an 'in the money' covered call (the option price is less than the market price for the stock), the holding period for the optioned stock is suspended during the period the taxpayer is the grantor of the option. (IRC § 1092(f).)
    
    At the time the IRS ruled that a short sale is a disposition of an incentive stock option (Rev Rul 73-92), there was no statutory authority for its conclusion. Congress later enacted Section 1259, which treats most short sales 'against the box' as closed transactions. The IRS could use a similar rationale as it did for Rev Rul 73-92 to try to attack the strategy of buying a put or selling an 'in the money' call to protect an ISO gain for stock held more than one year after exercise but not more than two years after a grant. Although this strategy appears to meet 'the letter of the law', the IRS could try to attack it. "



19. Page 86, item 35, 1st paragraph. Should be "(These rules apply to "insider" stock that is not freely transferable under the securities laws, such as under SEC Act of 1934 Section 16(b) and to an early exercise when non-vested stock is received.)
    
    (Rule 16(b) item is a statutory exception to the general principle that restrictions are to be disregarded. Evidently, a Rule 144 restriction does not suspend the date of exercise.)



20. Page 92, top of page, Advantages, Capital gains deferral. Should be "Under certain circumstances, buying puts…"



21. Page 105, 1st paragraph, 2nd sentence. Should be "The maximum rates as described at Frequently Asked Questions, question 23, for the regular…"



22. Page 107, Constructive Sale, 1st paragraph. Suggested addition, "…locking in the current price or makes a short sale while holding the security ("against the box".)



23. Page 114, Short-Term Capital Gains Tax, 2nd sentence. Should be "The gain or loss is taxed at the same tax rates as for ordinary income."

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