Are there any advantages to being given stock options priced higher than fair market value?

October 16, 2000

Subject:   Stock Question
Date:   Mon, 2 Oct 2000
From:   Luv

My company was bought out on June 30th and part of the agreement was to give the employees a number of shares (not options). There was a lock up period of 90 days so at the stock certificates would be handed out end of September. My concern is, we were told that the share price that the company will use is the June 30th price (which at the time was $24.00 a share). The price of the share right now is $16.00 per share. I know this will be considered taxable income this year, so here’s my question: is there any advantage for being given the shares at the $24.00 price as opposed to being given them at the lower rate? I can’t think of any advantage, just the loss if I sell the share immediately. Please advise.


Hello Luv,

You haven’t given me many details about your situation.

If the stock price doesn’t improve, it will not be to your tax advantage to have the stock valued at $24 instead of $16. The result is to convert ordinary income into a capital loss.

One consideration that may be favorable is your holding period starts earlier with the $24 value.

Do you have any capital gains you can apply the loss to?

Your employer may not have a choice in this matter. The amount of income is determined based on the facts in the case. Presumably they have accountants and attorneys advising them.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options – Executive Tax and Financial Planning Strategies.

For more information about non-qualified stock options, request our free report, Non-Qualified Stock Options – Executive Tax and Financial Planning Strategies.

Comments are closed.