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Date:   Wed, 23 Aug 2000
From:   John

From the employers perspective, what is the most economical method to objectively determine the exercise price of ISO's? Thanks.

John

Answer

Date:   11 Sept 2000

Hello John,

Thanks for writing.

Most of my advice focuses on the employee side of tax planning for ISOs.

The question that you raise is a good one. When the company has stock that is publicly traded, you refer to the average of the high and low selling price on the date of grant. When the company is privately held, this information isn’t available and valuation becomes problematic – there is no "standard formula." I recommend that you consult with your CPA firm and the attorneys that drafted your plan on this issue.

The good news is that the Internal Revenue Code provides (Section 422(c)(1)) that good faith efforts to value the stock by the employer will be accepted.

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.