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Date:   Mon, 08 May 2006
From:   Steve

1. Does the company pay any taxes relating to incentive stock options granted to independent contractors?
2. Can ISOs be issued to independent contractors?
3. Can the company make the ISOs available at a $0 cost, as an incentive for making certain sales goals?

Answer

Date:   Wed, 14 Jun 2006

Hello Steve,

1. See 2.
2. ISOs can only be granted to employees. Non-qualified options can be granted to independent contractors.
3. No. ISOs and NQOs must be priced at fair market value on the grant date. However, you can make a stock grant as a bonus.

It sounds like you need to consult with an attorney that writes stock-based compensation plans.

It's dangerous to "wing it" when setting up stock-based compensation plans. Look at all of the trouble major companies are having with the SEC. You can have a plan blow up in your face and both the company and your contractors will lose.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options - Executive Tax and Financial Planning Strategies.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.