Michael Gray, CPA’s Option Alert #84

An irregular alert for issues relating to employee stock options

September 8, 2010
© 2010 by Michael Gray, CPA
ISSN 1931-2768

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

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September 15 is a major due date for extended income tax returns. May we help?

September 15, 2010 is the federal extended due date for calendar year corporations, S corporations, partnerships, trusts and estates. Only about two weeks to go to timely file these returns. To make an appointment for our firm to help with your return, call Dawn Siemer at 408-918-3162 on Monday, Wednesday or Friday from 9 a.m. to 5 p.m. Pacific Time.

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Third federal estimated tax payment is due September 15

The third federal estimated tax payment is due September 15. Some taxpayers are basing their 2010 estimated tax payments on this year’s income and deductions, and should get the information to their tax preparer right away to prepare the payment voucher.

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Where is my third quarter California estimated tax voucher?

For 2010, California has “front loaded” its estimated tax payments for individuals. 30% was due in April and 40% in June, with no payment in September and the remaining payment in January 2011. The only reason to make an estimated tax payment in September for California is as a “catch up” payment.

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October 15 is the extended due date for individual income tax returns

Sneaked up on you again, didn’t it? The extended due date for 2009 individual income tax returns is less than a month and a half away. Also, I am planning on being out of town the week after October 8, so if you want our help finishing your return, please send the information now. To make an appointment for us to prepare your return, call Dawn Siemer at 408-918-3162 on Monday, Wednesday or Friday from 9 a.m. to 5 p.m. Pacific Time.

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Michael Gray speaks on family partnerships

Michael Gray, CPA will give “meeting before the meeting” presentations at the San Jose Real Estate Investor’s Association (SJREI) meetings at 6:15 p.m. on Wednesday and Thursday, October 6 and 7. His topic is, “What the IRS doesn’t want you to know about Family Limited Partnerships and LLCs”. The presentations will be at the Hyatt Place Dublin and the Biltmore Hotel in Santa Clara. The public is welcome but there is a $25 fee for nonmembers to attend. You will be able to register at the SJREI web site (www.sjrei.net) or call 408-264-3198.

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Financial Insider Weekly broadcast schedule for September and October.

Financial Insider Weekly is broadcast in San Jose and Campbell on Wednesdays at 7:00 p.m., Pacific Time on Comcast channel 15. The show is broadcast as streaming video at the same time at www.creatvsj.org.

Here are the scheduled interviews for the rest of September and October:

September 8: Mark Ericson, Attorney, “Divorce – California style – the basics”
September 15: Craig Martin, CFP, “Investing in Turbulent Times”
September 22: Craig Martin, CFP, “The role of the fee-only financial planner”
September 29: William Mahan, Attorney, “Short Sales and Foreclosures – Mechanics”
October 6: William Mahan, Attorney, “Short Sales and Foreclosures – Tax Considerations”
October 13: Bettie Baker Marshall, Attorney, “Caring for incapacitated relatives (Elder Law)”
October 20: Richard Lambie, Professional Fiduciary, “The Role of the Professional Fiduciary”
October 27: Mark Erickson, Attorney, “California divorce issues”

Financial Insider Weekly is also broadcast as follows:

  • Sunday at 5 p.m. on Comcast channel 28 in Hayward, Alameda and Fremont and on AT&T U-Verse Channel 99, Hayward public access TV 28 in California
  • Monday at 7:30 p.m. on Comcast channel 15 in Saratoga
  • Thursday at 5:30 p.m. on Comcast channel 27 in Santa Cruz County and Charter Communications channel 73 in Capitola and Watsonville
  • Thursday at 7 p.m. on Comcast channel 26 and AT&T U-verse channel 99 in Marin County
  • Thursday at 10 p.m. on Comcast channel 28 in Hayward, Alameda and Fremont and on AT&T U-Verse Channel 99, Hayward public access TV 28 in California
  • Friday at 4 p.m. on cable channel 15 in Cupertino, Los Altos and Mountain View
  • Friday at 4:30 p.m. on Comcast channel 15 in Los Gatos
  • Friday at 6:00 p.m. on Comcast and Astound channel 29 in San Francisco. Online streaming video at www.bavc.org, “public access TV”.

Past episodes of Financial Insider Weekly are posted on YouTube. One way to watch them is to go to our web site, www.financialinsiderweekly.com, and click on “Past Episodes.”

Let me know any ideas that you have for topics or guests. Guests will usually have to be located in or near the Silicon Valley in California.

Hope you can watch or record the show. Please tell your friends about it!

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Questions and Answers

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

Question

I am in the process of getting divorced. I have unvested NQSOs, a portion of which have been allocated to my ex-wife. My employer does not transfer unvested options to a non-employee spouse, and has informed me that upon exercise, the bargain element for both of our positions will be reported on my W-2. Income taxes and employment taxes will be withheld under my social security number.

How can I pass these items to my ex-wife for her share?

Answer

According to the IRS, the employment taxes are yours. (Revenue Ruline 2002-22.)

The IRS gives your employer guidance for options that are transferred to your ex-wife in Revenue Ruling 2004-60. The employer should issue a Form 1099-MISC, and withhold income taxes to be transmitted with Form 945.

There are no regular rulings that I know of yet for the “constructive trust” arrangement that you have. In a private ruling, the IRS has said that the non-employee spouse should report the compensation from the exercise of the NQSOs and get credit for the income tax withholding relating to the exercise. See Letter Rulings 200519011 and 2000646003. Consider applying for your own ruling based on having similar facts.

You should make a disclosure statement on your income tax return showing the total amount of income reported on Form W-2 and the amounts allocated to your ex-wife. Don’t efile your tax return for any years that you need this disclosure.


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Follow me on Twitter, Facebook or LinkedIn!

If you enjoy Twitter, please follow me at www.twitter.com/michaelgraycpa. I would especially appreciate retweets of our messages announcing episodes of Financial Insider Weekly.

I’m also on Facebook and Linked In. You can also follow me on other social media sites, www.facebook.com and www.linkedin.com/in/michaelgraycpa.

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Check out my blog.

I have also started a blog at www.michaelgraycpa.com. Check it out!

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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.

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(Michael Gray is the author of Secrets of Tax Planning For Employee Stock Options, Stock Grants and ESOPs.)

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