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Date:   Wed, 04 Oct 2006
From:   Bobby

Michael:

Does a company need to issue a 1099-MISC to a consultant when the spread for the exercise of a NQSO is less than $600?

If the stock option agreement is written so the service may be provided as a consultant or an employee, do you determine whether to issue a 1099 or W-2 based on the status of the grantee on the date the option is granted, exercised or vested?

Thanks!
-Bobby

Answer

Date:   Thu, 05 Oct 2006

Hello Bobby,

To determine whether a 1099-MISC is issued, you need to determine the total compensation paid. It seems likely there will be some payments in addition to the NQO spread to "kick over" the limit.

How do you have vesting for a non-employee?

I'm not quite sure how to answer your question about the "dual option" without a lot of research. I would say it depends on how the services were provided - as an employee or as a consultant. If it's both, you might have to segregate the amounts.

Life is complex enough with so many issues coming out on options like backdating, etc. I suggest that this type of agreement should be avoided.

Good luck!

Mike Gray

For more information about non-qualified stock options, request our free report, Non-Qualified 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.