Michael Gray, CPA’s Option Alert #68

An irregular alert for issues relating to employee stock options

May 6, 2009
© 2009 by Michael Gray, CPA
ISSN 1931-2768

(If you find this information valuable, please pass it on to a colleague!)

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Need help with refundable minimum tax credit?

Some people are finding reconstructing their minimum tax credit information a challenging task. They might have incurred the AMT when they exercised an incentive stock option back in 1999 and 2000 and didn’t pick up the carryover information for the credit in the later years.

Effective for 2008, you might be able to get a tax refund for the minimum tax credit plus penalties and interest paid to the IRS relating to an alternative minimum tax for exercise of an incentive stock option.

We understand the mechanics of how the alternative minimum tax works, so we can help you reconstruct this information.

We can claim the refundable minimum tax credit on an amended 2008 federal return or an extended 2008 federal return.

To schedule a complementary half-hour consultation with no obligation, call Dawn Siemer on Monday, Wednesday or Friday at 408-918-3162.

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Need help finishing an extended 2008 income tax return?

Unlike some commercial tax return preparation companies, we’re here all year.

If you exercised employee stock options or sold option stock during 2008, you should seriously consider getting help with your returns. We have seen some crazy errors when people prepare their own income tax returns using off-the-shelf software.

To schedule a complementary half-hour consultation with no obligation, call Dawn Siemer on Monday, Wednesday or Friday at 408-918-3162.

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Have you thanked Reform AMT?

It’s exciting to finally recover minimum tax credits from ISO exercises that have been “locked up” for years.

I hope you celebrate when you receive your refund check.

I also hope your remember that you received your refund as the result of a nine-year effort by volunteers at Reform AMT. In the process, they incurred significant lobbying expenses that still are unpaid.

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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”.


If an employee exercises non-qualified options and the FMV is less than the grant price on the exercise date, does the company need to report the loss on the employee’s W-2?


No. Only income is reported.

The only reason I can think of for an employee to exercise an option like this is it’s the only way to get the employer stock and a liquidity event (sale of the business or public offering) is expected in the near future when the stock price is expected to dramatically increase. Otherwise, it’s crazy to exercise an “underwater” option.


We issued NQSOs to a consultant who later became an employee and now is exercising the options. Since he’s now an employee, is the company required to withhold income taxes?


Since the options were issued for services performed as a consultant, payroll tax withholding shouldn’t apply. The income should be reported to this person using Form 1099-Misc.

Michael Gray regrets he can no longer answer emails personally. He will answer selected questions in this newsletter.

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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.

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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.

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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.

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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.)

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