Michael Gray, CPA’s Option Alert #62
An irregular alert for issues relating to employee stock options
November 7, 2008
© 2008 by Michael Gray, CPA
(If you find this information valuable, please pass it on to a colleague!)
Table of Contents
- Taxpayer appeal of disallowance of capital loss for AMT NOL fails
- Now is the time for year-end planning
- Time to consider an “escape hatch”?
- “Bailout” legislation includes tax legislation
- Michael Gray gives pre-“bailout” 2008 tax legislation update
- Live seminar on AMT Tax Relief
- Recording of AMT relief telephone seminar available
- Have you received your federal tax refund?
- Questions and Answers
- Executive Tax Planning for Employee Stock Options
- Do companies receive a tax deduction for stock grants?
- Do employee stock options in private companies have value?
- Can I now exercise an incentive stock option without AMT?
- Do employment taxes apply to non-qualified stock options?
- Is there tax relief for non-qualified stock options?
- Do you know about our other newsletters?
- IRS Circular 230 Disclosure
- Consult with a tax advisor
- Subscribe to Michael Gray, CPA’s Option Alert
- AMT seminar CD flyer
Taxpayer appeal of disallowance of capital loss for AMT NOL fails (again)
Jonathan and Kimberly Palahnuk appealed a Tax Court ruling that capital losses are disallowed when computing an alternative minimum tax net operating loss. The Second Circuit ruling is consistent with previous rulings by the Courts of Appeals for the Fifth, Ninth and Federal Circuits.
The Palahnuks were trying to apply a net operating loss to eliminate the alternative minimum tax for exercising an incentive stock option during 2000 by carrying back a loss for the sale of the stock in 2001.
The Palahnuks will be relieved to know they will be entitled to refundable minimum tax credits under legislation passed on October 3, 2008.
(Palahnuk v. Commissioner, CA-2, September 29, 2008.)
Now is the time for year-end planning
Now that Halloween is past, we know the year will soon be over. Michael Gray has jury duty the first week of December, and of course we will be closed on Thanksgiving and the day after and on Christmas Eve and Christmas Day. That means there will be a limited number of year-end planning appointments available. Make your reservation now by calling Dawn Siemer at 408-918-3162.
Time to consider an “escape hatch”?
The alternative minimum tax adjustment for exercising an incentive stock options (ISO) is still in effect for 2008. If stock received from exercising an ISO has fallen in value, you might be able to reduce your tax by selling the stock before the end of the year. Since some individuals may be subject to “lockouts” or other restrictions on selling their stock, it’s worthwhile thinking about whether stock received from exercising an incentive stock option during 2008 should be sold before the end of the year. Remember that “wash sale” limitations can apply. See your tax advisor or call Dawn Siemer at 408-918-3162 to make a year-end planning appointment soon.
“Bailout” legislation includes tax legislation
The “bailout” package passed by Congress and signed by President Bush on October 3 to stabilize the U.S. economy includes two tax acts: the Energy Improvement and Extension Act of 2008 and the Tax Extenders and Alternative Minimum Tax Relief Act of 2008.
There are too many tax breaks for me to list here. I think the most significant item is alternative minimum tax relief highlighted in the “Extra” edition of this newsletter on October 9. Also see the article posted at http://www.stockoptionadvisors.com/refund For the first time in years, we know what the alternative minimum tax exemptions are well before the end of the year, which will really help tax advisors do a better job with year-end tax planning.
See below about seminars that I will be leading.
Ask your tax advisor for information about how the Acts will affect you.
Michael Gray gives pre-“bailout” 2008 tax legislation update
Michael Gray will be giving a webcast for CPELink on November 19. The “bailout” will not be covered in this webcast.
Live AMT Relief seminar
Michael Gray with guest speaker Jay Cena of Reform AMT will give a live lunchtime seminar about AMT Relief on Friday, November 7. Today is the DEADLINE for registration.
Live “Bailout” Tax Legislation seminar
Michael Gray will give a breakfast briefing on the Energy Improvement and Extension Act of 2008 and the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 on November 17, 2008. This event is for the Silicon Valley San Jose Chapter of the California Society of Certified Public Accountants and qualified for continuing education credits for CPAs and attorneys. For details and a registration form, go to this link: www.taxtrimmers.com/08-11seminar.pdf.
Recording of AMT Relief telephone seminar available
If you missed the telephone seminar on October 30 and can’t come to the live seminar on November 7, you can still get the details on a recording of the telephone seminar. You will want this information if you ever exercised an incentive stock option and (1) you have a federal minimum tax credit that you haven’t been able to recover, (2) you ever paid a penalty or interest before October 3, 2008 to the IRS relating to an alternative minimum tax (AMT) for exercising an incentive stock option, or (3) you have an unpaid amount due to the IRS relating to an alternative minimum tax for exercising an incentive stock option. An order form is included with this newsletter.
Have you not received your federal tax refund?
The IRS is trying to locate taxpayers to claim 383,000 refund and economic stimulus payments totaling about $266 million. If you are wondering if you’re one of them, check the IRS web site for stimulus payment and refund or call 866-234-2942 (stimulus payment) or 800-829-1954 (refund).
Questions and Answers
To our readers:
The answers to many of your questions can be found in our free reports, “Executive Tax and Financial Planning For Non-Qualified Stock Options”and “Executive Tax and Financial Planning For Incentive Stock Options”.
I have a client who instead of giving a cash bonus to their employees wants to give them stock awards/grants. I believe the employees would have to report income equal to the value of the stock on the date of the grant, but would the company get a tax deduction equal to that amount?
Also, they want to issue the stock awards out of treasury stock. How would they account for the transactions?
Yes, the employer gets a tax deduction corresponding to the income reported by the employees. See Internal Revenue Code Section 83 and the related regulations.
My newsletter and site relates to tax questions. I suggest that you refer to the accounting literature about your accounting question. The American Institute of Certified Public Accountants has a “hot line” for accounting issues, 877-242-7212.
Does a company stock option ever have any value unless the company goes public?
My sister and brother-in-law are bragging he will be a millionaire three times over because he received stock options for a solar panel manufacturing plant that he works for. They haven’t opened for business yet, haven’t earned a penny, and the biggest contract for the company is from the CEO’s brother in Taiwan.
Yes, stock options often have value before a company goes public. I have a client who works for a company that has technology that venture capitalists and potential acquirers are very excited about. Even though the company “has never made a penny,” his options are potentially very valuable.
These days, most employees of private companies are cashing out their options when their companies are bought out by another company.
Time will tell what will happen for your brother-in-law. He could end up with a fortune or with nothing.
Meanwhile, try not to be irritated with your family members.
I understand unpaid liabilities for past ISO exercises have been abated.
I haven’t exercised my ISO because I didn’t want to pay an AMT. Can I exercise now without an AMT liability?
No. The AMT adjustment for ISO exercises has not been repealed and still applies for 2008.
If an ISO is converted to an NQO, do employment taxes like FICA and FUTA apply when the NQO is exercised?
Is there relief in the new tax law for people who had disastrous results from holding stock after exercising nonqualified stock options in 2000?
Michael Gray regrets he can no longer answer emails personally. He will answer selected questions in this newsletter.
Do you know about our other newsletters?
For general tax developments, tax planning ideas, business development ideas and book reviews, subscribe to Michael Gray, CPA’s Tax & Business Insight.
We are now offering our real estate tax newsletter, Michael Gray, CPA’s Real Estate Tax Letter, free of charge. Like this newsletter, we will talk about new developments, have reports on special tax concerns, and answer questions and answers. To subscribe and read a sample issue, visit realestatetaxletter.com.
IRS Circular 230 Disclosure:
As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this communication 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.
Consult with a tax advisor
For our readers who aren’t tax advisors, this newsletter is intended to alert you about tax issues that could affect you. It is not a substitute for advice from a professional tax advisor. You will find that getting advice from a qualified advisor is a worthwhile investment.
Tax advisors should view the newsletter as an alert to become aware of issues relating to employee stock options for further research and study.
Subscribe to Michael Gray, CPA’s Option Alert!
To receive the next issue of Michael Gray, CPA’s Option Alert with more employee stock option tax developments and answers to questions from our readers automatically via email, subscribe by filling out the form below.
(Michael Gray is the author of Secrets of Tax Planning For Employee Stock Options, Stock Grants and ESOPs.)
Action Form – deadline is Friday, November 30, 2008
Yes! Please send me a CD recording of the AMT Relief telephone seminar about Alternative Minimum Tax Abatement and Refundable Minimum Tax Expansion. I want to learn find out if I can benefit from this major tax relief legislation.
The seminar speakers were Michael Gray, CPA, together with guest speakers Tim Carlson, President of the Coalition For Tax Fairness and Angela Hartley and Jay Cena with Reform AMT.
The recording is about an hour and fifteen minutes long. My investment for the recording is $97. Guarantee: I must agree this is a valuable experience or you will immediately issue a 100% refund.
The investment is $97.00 plus $1.50 handling and $8.13 sales tax for California residents.