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Attention: Employees who received stock options or grants, or are ESOP participants, and their advisors!

Will you (or your client) owe a tax without having the cash to pay it?

Studying this book could save your family from bankruptcy and avoid severe emotional distress from unexpected tax bills!

3:35 p.m.

Good afternoon,

Could this happen to you?

"In January, 2000 I exercised the majority of my shares of a pre-IPO company that eventually went public. My strike price on these shares ranged from about $1 to $8, and I exercised all these shares (when the fair market value was) around $129. My intention was to hold them until at least January 2001, which would have qualified these stocks for the "2 year, 1 year" rule and would qualify for long-term capital gains."

"Well, you can probably guess what happened next. My stock is hovering at about $40. To my understanding, if I hold the stocks into next year, I would have to pay AMT on the stock at $129. Well, basically, I would have to sell all the stock just to be able to pay the AMT consequences."

This is part of a letter we received from one of our newsletter readers. Many employees who have been granted stock options discover, too late, they had been handed a loaded gun that they accidentally shot themselves with.

After the market crash in 2001, I attended a "town hall" meeting where options holders shared their experiences of emotional distress so severe that they lost their hair. They were also afraid of going bankrupt and losing their homes.

Who is Michael Gray, CPA?

My name is Michael Gray. I’m a certified public accountant (CPA). Back in 1985, I assembled a study about the tax consequences of different stock options and made a presentation on the subject for the tax partners and managers of a national CPA firm, and I’ve continued to advise clients in this area ever since.

I am the principal author of a monthly newsletter, Michael Gray, CPA’s Option Alert, and the co-author of Employee Stock Options – A Strategic Planning Guide for the 21st Century Optionaire.

Because of the many questions we are receiving from our readers, we know people with options need help but often haven’t been able to find it from their local tax advisors. Some have been getting erroneous advice from their advisors but have no way to know if that advice is reliable or not. Following erroneous advice can result in thousands, sometimes millions of dollars in additional taxes and penalties.

Secrets of Tax Planning For Employee Stock Options, Stock Grants and ESOPs

I have written a comprehensive explanation, Secrets of Tax Planning For Employee Stock Options, Stock Grants and ESOPs.

Like having a personal consultation with an expert on planning for employee stock options.

Reading this material is like sitting across the table from me in a consultation, at a fraction of the investment. My consultation fee is $390 an hour. I invested hundreds of hours in assembling this material for you. If we were conservative and said you received ten hours of advice, the value would be $3,900. But the total investment is less than the cost of one hour. More importantly, the information in this material could save you thousands, possibly millions of tax dollars and penalties!

What’s included

Secrets of Tax Planning for Employee Stock Options includes explanations of employee (and independent contractor) planning for Incentive Stock Options, Non-Qualified Stock Options, Employee Stock Purchase Plans, Stock Grants and Employee Stock Ownership Plans (ESOPs).

While each of these types of plans represent significant benefits for employees (non-qualified options are also available for non-employees), they also include tax traps that can result in a huge tax without having the cash to pay it.

I have included, word for word, my initial consultation presentation explaining how incentive stock options work.

Also, I have included step-by-step examples illustrating the various concepts.

Here are some of the subjects discussed:

Incentive Stock Options

1. What are four alternative scenarios to consider when evaluating risk and tax results when planning?



2. What is the "escape hatch" and when should you use it?



3. What tax rates apply in different scenarios, and how do they relate to evaluating risk?



4. What are the mechanics of the alternative minimum tax and the minimum tax credit?



5. What limits apply to the new refundable minimum tax credit?



6. How can the estimated tax rules be used to manage cash flow?



7. What are the tax results of "hedging" strategies?



8. What are special considerations when an early exercise is allowed?



9. What special considerations apply for "insider" stock?



10. What are the tax consequences of backdating ISOs?

Non-Qualified Stock Options

1. What general rules apply when non-qualified stock options are exercised?



2. When is stock considered "restricted", and what special elections apply in those situations?



3. When do you make a "Section 83(b)" election?



4. What are the tax consequences of a forfeiture after a Section 83(b) election has been made?



5. How must non-qualified stock options to avoid severe penalties for non-qualified deferred compensation plans under Internal Revenue Code Section 409A?



6. What are the tax consequences of backdating employee stock options?

Employee Stock Purchase Plans

1. How does an employee stock purchase plan compare to incentive stock options?



2. Does the alternative minimum tax apply to ESPPs?

Stock Grants

1. How is a stock grant taxed?



2. When would you make a Section 83(b) election for a stock grant?



3. What are state tax consequences when an employee moves?

ESOPs

1. What are employee benefits of ESOPs?
   
   
2. What are the tax breaks for a sale by an existing shareholder to an ESOP?
   
   
3. What diversification elections are available for employees?
   
   
4. What are the distribution requirements after an employee retires?

What is the investment for the book?

The investment for the book when it is generally distributed will be $199.95. When you buy it from this pre-publication offer no later than July 31, 2007, the investment is only $99.95 plus $15 shipping and handling and $8.25 California sales tax for California residents.

But wait! There’s more!

As an additional bonus, you’ll receive an Excel spreadsheet for tracking the tax basis of stock acquired by exercising an incentive stock option and another spreadsheet for allocating interest from a margin account to determine how to allocate and deduct the interest expense.

Unconditional Guarantee

You must find this the most valuable reference you have ever seen about Employee Stock Options, Stock Grants and ESOPs or simply return the course for a no-hassle immediate refund of your investment.

I’m looking forward to helping you with your questions relating to employee stock options, stock grants and ESOPs!

May your options increase in value!

Michael C. Gray
mgray@stockoptionadvisors.com

P.S. Remember, you must order Secrets of Tax Planning For Employee Stock Options, Stock Grants and ESOPs no later than July 31, 2007 to be eligible for the pre-publication price of $99.95 plus $15 shipping and handling and $8.25 sales tax for California residents. You will also receive the Interest-Tracing worksheet, and the Worksheet to Trace Incentive Stock Option exercises as our bonus gift.

© 2007 Michael Gray

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Early Action Form

YES! I want to protect myself from a potential tax disaster by finding out the tax consequences of exercising my Employee Stock Options.

Please send me Secrets of Tax Planning For Employee Stock Options, Stock Grants and ESOPs and my bonus Excel spreadsheets for Interest Tracing and Tracking Tax Basis Of Incentive Stock Option Shares.

My investment is only $99.95 (half-off the regular price of $199.95) plus $15 shipping and handling and $8.25 sales tax for California residents, when I order by July 31, 2007.

MY SATISFACTION IS GUARANTEED. If I don’t find this the most valuable reference I have ever seen about Employee Stock Options, I may simply return the course for a no-hassle immediate refund of my investment. I am the sole judge.

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or mail to Silicon Valley Publishing Company
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© 2007 Michael C. Gray

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Who is Michael Gray, CPA?

• Co-author of Employee Stock Options – A Strategic Planning Guide for the 21st Century Optionaire, published by Stillman Publishing.



• Owner of Michael Gray, CPA, founded in 1996.



• Author of Michael Gray, CPA’s Tax and Business Insight and Michael Gray’s Option Alert monthly newsletters.



• Past President, Silicon Valley San Jose Chapter, California Society of Certified Public Accountants.



• Partner, Hubler, Gray and Associates, CPAs, 1986 – 1996.



• Former chairman of Tax Committee, San Jose, CPAs.



• Former member of Tax Committee, California CPAs.



• Tax Manager, KMG Main Hurdman (subsequently acquired by Peat Marwick), 1978 – 1986.



• Accountant, Berger, Lewis & Company 1974 – 1978.



• Author of and contributor to articles in various publications, including The Wall Street Journal, The New York Times, San Francisco Chronicle and San Jose Mercury News.



• Black Belt, West Coast Tae Kwon Do



• Performed in Will Rogers Follies, Carousel, and South Pacific with West Valley Light Opera.

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Table of contents

i.	Read this first
ii.	Introduction
1.	Why are stock options and employee stock purchase plans so great?	1-1
2.	Incentive Stock Options	2-1
	The Basics	2-1
	What are the regular tax benefits (the brass ring) of an incentive stock option?	2-1
	What happens if the holding period requirements aren’t met?	2-2
	What transactions can be disqualifying dispositions?	2-2
	What requirements must be met for an employee option to qualify as an ISO?	2-3
	The Alternative Minimum Tax	2-5
	Some AMT credit made refundable for 2007 through 2012	2-15
	What is the "escape hatch", and why is it critically important?	2-17
	Is there an alternative approach to dealing with depreciated ISO stock?	2-17
	A strategic planning interview	2-18
	Estimated tax, withholding and timing	2-25
	The employer’s tax deduction	2-27
	Employer information reporting	2-28
	What is a "cashless exercise"?	2-29
	What are vesting and early exercise, and how does the Section 83(b) election work?	2-29
	Caution! AMT deduction limited for forfeiture!	2-32
	Other Restricted Stock	2-33
	Stock That Isn’t Publicly Traded	2-34
	What happens if the employer reprices the options?	2-34
	Payment of option price with employer stock	2-35
	Is stock pyramiding advantageous for ISOs?	2-38
	What is a reload option?	2-39
	What happens when the employer company is acquired by another company?	2-39
	What happens when the employee terminates employment with the ISO- granting employer?	2-42
	Hedging to protect against losses	2-42
	Tandem stock options and stock appreciation rights	2-45
	How Do I Handle My Wash Sales?	2-47
	Non-qualified deferred compensation and ISOs	2-48
	Tax consequences of back dating	2-48
	Divorce	2-49
	Estate planning	2-50
	ISOs and ISO Stock After A Death	2-53
	State tax issues – the mobile employee	2-55
3.	Non-Qualified Options	3-1
	The Basics	3-1
	Requirements For The Option Price	3-1
	Written plan requirement	3-4
	Publicly-traded non-qualified stock options	3-4
	Strategic Planning For Non-Qualified Options	3-5
	Estimated Tax And Withholding	3-6
	Requirements for deduction by employer	3-8
	What is a "cashless exercise"?	3-9
	Vesting, Early Exercise (Section 83 (b) election)	3-9
	Caution! Deduction limited for forfeiture!	3-11
	Other Restricted Stock	3-12
	Stock That Isn’t Publicly Traded	3-13
	What happens if the employer reprices the options?	3-13
	Payment of option price with employer stock	3-14
	Is stock pyramiding advantageous for NQOs?	3-16
	What is a reload option?	3-16
	Payment for option using nonrecourse note	3-17
	What if the NQO fails the exception under the nonqualified deferred compensation Rules?	3-17
	Can the income from a NQO be rolled over to a nonqualified deferred compensation plan?	3-18
	What happens when the employer company is acquired by another company?	3-19
	What happens when the employee terminates employment with the NQO-granting employer?	3-21
	Is the taxable income from exercising an NQO "compensation" for IRA contributions?	3-22
	Can a sale of options qualify for installment sale reporting?	3-22
	Tandem stock options and stock appreciation rights	3-23
	Tax consequences of back dating	3-24
	Divorce	3-24
	Estate planning	3-26
	NQOs After A Death	3-31
	State tax issues – the mobile employee	3-34
4.	Employee Stock Purchase Plans	4-1
	The Basics - What are the benefits of Employee Stock Purchase Plans (ESPPs)?	4-1
	What happens if the holding period requirements aren’t met?	4-1
	What is a disqualifying disposition?	4-2
	ESPP and ISO compared	4-2
	Some planning considerations	4-5
	Estimated tax and withholding	4-6
	Employer information reporting	4-8
	What happens when the employer company is acquired by another company?	4-9
	Employer’s tax deduction	4-10
	What happens when the employee terminates employment with the ESPP-granting employer?	4-10
	Hedging to protect against losses	4-10
	Non-qualified deferred compensation and ESPPs	4-10
	Tax consequences of back dating	4-10
	Divorce	4-11
	Estate Planning	4-11
	ESPPs and ESPP Stock After A Death	4-11
5.	Stock Grants (Restricted Stock) (Including stock transfer in connection with the performance of services)	5-1
	Introduction	5-1
	The Basics	5-2
	Strategic planning for stock grants	5-2
	Estimated Tax and Withholding	5-3
	Requirements for deduction by employer	5-5
	What if the service provider pays for stock using a nonrecourse note?	5-6
	Vesting, (Section 83(b) election)	5-6
	Caution! AMT deduction limited for forfeiture!	5-8
	Other Restricted Stock	5-9
	Stock That Isn’t Publicly Traded	5-9
	What happens when the employer company is acquired by another company?	5-10
	What happens when the employee terminates employment with the employer that granted stock?	5-12
	How are dividends received relating to unvested stock taxed?	5-12
	Can a sale of unvested granted stock qualify for installment sales reporting?	5-13
	The new deferred compensation rules	5-13
	Back dating	5-13
	Divorce	5-14
	Estate planning	5-15
	Granted Stock After A Death	5-18
	State tax issues – the mobile employee	5-19
6.	ESOPs	6-1
	Some employer benefits of ESOPs	6-1
	Some employee benefits of ESOPs	6-2
	What kind of employer stock can be held by an ESOP?	6-3
	Tax break for sales by existing shareholders of employer corporation to an ESOP	6-3
	Voting rights	6-5
	Diversification election	6-5
	Distributions	6-7
	General rules	6-7
	Elective rules for ESOPs	6-8
	Net unrealized appreciation	6-9
	Protecting an S election	6-9
	Rights for distributions of employer securities	6-9
	Planning for termination of employment	6-10
	Tax planning for retirement	6-11
	Estate planning for ESOP accounts	6-12
	Handling ESOP accounts after a death	6-14
	Minimum required distributions for year of death	6-15
	Determine the designated beneficiary	6-15
	Minimum required distributions for years after death	6-17
	Spousal rollover	6-20
	SOSEPP exception	6-21
	Disclaimers	6-22
	Income with respect of a decedent issues	6-23
	Net unrealized appreciation of employer stock	6-23
	IRD deduction	6-23
	Is IRD triggered when funding formula pecuniary bequests to trusts?	6-23
7.	Related Issues	7-1
	The swamped employee	7-1
	Diversification	7-2
	Payment for stock using notes	7-3
	How to identify securities sold	7-4
	Valuation of employer stock	7-4
	Strategies for when you don’t have the money to pay the tax	7-5
	Why I preferred to avoid extensions of time to file when a tax is due or there is a dispute about the value of employer stock	7-7
	Warning! The Interest Expense for Your Margin account may not be tax deductible!	7-9
	Worthless Stock	7-11
8.	Proposals for Tax Relief	8-1
	Scrap the systems?	8-1
	Employee Option Reform Proposals	8-2
9.	Options comparison Chart	9-1
10.	Bibliography	10-1
11.	Appendix (items listed on this page)	11-1

Appendix

	2007 Projected Income Tax Rates
	Form 2210, Federal Underpayment of Estimated Tax by Individuals, Estates and Trusts (with instructions)
	Form 6251, Federal Alternative Minimum Tax – Individuals (with instructions)
	Form 8801, Federal Credit For Prior Year Minimum Tax – Individuals, Estates and Trusts (with instructions)
	Form P (540), California Alternative Minimum Tax and Credit Limitations – Individuals (with instructions)
	Form 3510, California Credit for Prior Year Alternative Minimum Tax – Individuals (with instructions)
	Sample Worksheets For ISO Exercise Carryover Information
	Interest Tracing Worksheet Example
	Section 83(b) Election Form
	California Stock Option Guidelines, FTB Publication 1004
	IRS MSSP for Stock Based Compensation
	IRS MSSP for Alternative Minimum Tax
	Uniform Lifetime Table (joint lives) and Single Life Table for qualified retirement plan distributions (Treasury Regulations § 1.401(a)(9)-9 Q & A 2 and Q & A 1)
	Unified Transfer (Estate and Gift) Tax Tables

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Michael Gray is the Acknowledged Expert on Employee Stock Options!

Quoted in the Following Articles:

"For option holders, what the options are," by Mark Schwanhausser, San Jose Mercury News, April 29, 2007

"Take stock of changes in purchase plans,", by Andrew Leckey, Los Angeles Times, March 27, 2005

"If your timing’s wrong even taking a profit can cost you a bundle," by Mark Schwanhausser, San Jose Mercury News, December 2, 2001

"Confusion on options can be hugely costly," by Mark Schwanhausser, San Jose Mercury News, Sunday, May 27, 2001

"Apathy, confusion leads to stock option blunder," by Mark Schwanhausser, San Jose Mercury News, Saturday, May 26, 2001

"Know the pros and cons of stock options," by Andrew Leckey, Milwaukee Journal Sentinel, May 3, 2001

"Options dream turns to nightmare," by Rachel Konrad, CNET News.com, April 16, 2001

"Tax man or grim reaper?" by Erik Linden, Silicon Valley Business Ink, April 13, 2001

"Options dream becomes a taxing nightmare," by Rachel Konrad, ZDNET News.com, April 13, 2001

"New Economy: Lose Money, Pay Tax," by Joanna Glasner, Wired News, April 6, 2001

"Take a Deep Breath, Get Out Your Checkbook And Pay Your Amts," San Jose Mercury News, April 3, 2001

"Burdened Taxpayers Figure Out How to Make a Deal with IRS," Mark Schwanhausser, San Jose Mercury News, Saturday, March 31, 2001

"Tax experts say where there’s a bill there’s a way," by Mark Schwanhausser, San Jose Mercury News, Saturday, March 31, 2001

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Here’s what Michael Gray’s clients say

"To Whom It May Concern:

I first met Mike Gray in 1999 to ask his assistance with stock option tax issues. Little did I know back then that over the next few years, Mike would help me with a hairy tax documentation problem, help my wife and me set up our will, provide me with advice on starting my new company, and become our company tax advisor. Along the way, Mike has provided me with excellent legal contacts and even sales reference materials.

Adding it all up, you soon realize that Mike is much more than just a CPA – he is a very knowledgeable advisor and guide in all facets of our financial life. I’m very glad to count Mike Gray as one of my most trusted advisors.

Best Regards,
Dean

Dean Haritos
President
Cloudbreak Software, Inc.

"Mike is a very astute tax professional. He has provided much guidance so that we can try and be as tax efficient as possible and keep as much of our hard earned dollars!"

--Suzanne and Scott Gardner

"I greatly appreciate Mike Gray & his office staff’s help!

• Timely reminders each quarter, with follow-up.
• Clear explanations & sound advice on complex stock option rules.
• Dependable & trustworthy."

--Suresh Rao

"There is something in Mike’s DNA that makes him special at accounting. His ease with handling minutae has enabled him to really save my butt!"

--John Mardinly

"Mr. Gray really knows his stock options and he is an expert with ‘AMT’ – Alternative Minimum Tax. Mr. Gray helped me receive a $94,988.00 credit towards my tax liability. The savings in penalty, interest and stress are worth much, much more. Thanks a $ million!"

-- John Simon