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Date:   Tue, 26 Oct 1999
From:   James

Regarding Non-Qual. Stock Options: Right now I have NQSO's in a private company which plans to go public w/in 2 years. If I exercise these options, I understand the spread between the option price and the "Fair Market Value" will be taxed as ordinary income. My question is: how is the "Fair Market Value" determined for a company which is not public, yet? Can the company arbitrarily set a price we have to live with? Thanks for the feedback. Your website has a lot of good information.

-James

Answer

Date:   Tue, 26 Oct 1999

Hello James,

When a company isn't public, yet, an employee has little choice but to rely on the figures give to him or her by the company as the fair market value. To have an appraisal done to determine yourself if it is prohibitively expensive would cost $15,000 to $20,000, and requires extensive time and cooperation by the company's accounting personnel and accounting firm.

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.