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Subject:   Cash Buyout of my Employer
From:   Tom

In your article entitled "Non-Qualified Stock Options Executive Tax and Financial Planning Strategies", number 10 states:

"If an acquiring party purchases the outstanding non-qualified stock options from employees or service providers, the money plus the fair market value of any property received by the employees or service providers is taxable as ordinary compensation income...".

In my situation, I am being forced to exercise/sell because of the cash buyout. Does the IRS have any provision for me to shift the options to a "like" investment rather than receiving the proceeds as ordinary compensation? I understand one way to do this is if options in the new company were issued in exchange for outstanding options of the old company, but I'm not being given that opportunity.

Thanks for your input,

Tom
Phoenix, AZ

Answer

Date:   07 Aug 2000

Hello Tom,

There is no provision to make a tax-deferred exchange of company shares received from a non-qualified option relating to a corporate buyout, except for a stock for stock exchange in a reorganization of the acquiring company.

Sorry,

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.