Michael Gray, CPA’s Option Alert #136
An irregular alert for issues relating to employee stock options
August 26, 2015
© 2015 by Michael Gray, CPA
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Table of Contents
- Third quarter estimated tax payment due September 15
- October due date is coming for individual income tax returns
- IRS eliminates requirement to attach Section 83(b) election
- Income received for “stock incentive units” was ordinary
- Regulations regarding stock-based compensation costs held invalid
- New tax legislation enacted
- Gifts from non-resident aliens can be subject to U.S. Gift Tax
- Does your group need a speaker?
- Please share your good experiences with Michael Gray, CPA
- Financial Insider Weekly broadcast schedule
- Follow me on social media!
- Check out my blog
- Do you know about our other newsletters?
- Consult with a tax advisor
- Subscribe to Michael Gray, CPA’s Option Alert
Third quarter estimated tax payment is due September 15
The third quarter federal estimated tax payment due date for
individuals, calendar-year trusts and most calendar-year
corporations is September 15. California doesn’t have a third
quarter estimated tax payment due on September 15 because the first
two payments are “front-loaded.” In some cases, taxpayers will
“catch up” on unpaid California estimated tax payments on September
October due date is coming for individual income tax returns
In case I get snowed and don’t get out an October newsletter before
October 15, remember that is the due date for extended individual
income tax returns. Get the information to finish your tax returns
to your tax return preparer right away. If you need us to prepare
your tax return, call Dawn Siemer on Monday, Wednesday or Friday at
408-918-3161 for an appointment.
IRS eliminates requirement to attach Section 83(b) election to
income tax return
Taxpayers who receive unvested property in connection with
performing services are generally taxed on the fair market value of
the property when it vests. Examples are stock received by
exercising a non-qualified stock option and stock grants.
Taxpayers may elect to disregard the unvested status of the property
by making a Section 83(b) election within 30 days after the date of
the transfer. The election is mailed to the Internal Revenue
Service Center where the taxpayer files his or her income tax
In addition, the taxpayer is required to attach a copy of the
election to his or her income tax return for the year the property
was received and to provide a copy of the election to the company
that provided the property.
Taxpayers have been unable to attach a copy of the election to their
income tax returns when they efile them. To promote efiling, the
IRS has issued proposed regulations eliminating the requirement to
attach a copy of the election to their income tax returns. The
proposed regulations may be relied upon for property transferred on
or after January 1, 2015.
(REG-135524-14, July 17, 2015.)
Income received for “stock incentive units” was ordinary income
David Stout received “stock incentive units” (SIUs) under a “stock
equivalent plan” as compensation for his employment as a software
The value of SIUs was measured by the fair market value of a share
of the employer’s common stock. Employees were also credited with
amount equal to cash dividends paid for common stock. Plan
participants did not “acquire any right, title, or interest in any
assets of the Company.”
The company was acquired, and Mr. Stout received $319,559
representing the value of his plan account at the time of the
Mr. Stout claimed the income should be taxed as long-term capital
gains. He claimed the plan was an incentive stock option and that
he acquired corporate stock.
The Tax Court upheld the IRS in finding the compensation was taxable
as ordinary income. The plan was not an incentive stock option and
Mr. Stout didn’t in fact receive corporate stock. The right to
receive a future payment of ordinary income is not a capital asset.
(Stout, T.C. Memo. 2015-133, July 21, 2015.)
Cost-sharing regulations requiring including stock-based
compensation costs held invalid
In a partial summary judgment, the Tax Court ruled against the IRS,
holding that regulations requiring the allocation of stock-based
compensation costs (employee stock options) in qualified cost-
sharing agreements (QCSAs) between U.S. companies and foreign
affiliates were invalid.
The Treasury file for the regulations didn’t include any expert
opinions, empirical date or published or unpublished articles,
papers, surveys or reports supporting a determination that the
amounts attributable to stock-based compensation must be included in
the cost pool to achieve an arm’s length result.
The Treasury also failed to adequately respond to several relevant
and significant comments received to proposed regulations.
Therefore, the regulations were invalid as arbitrary and capricious.
Corporate taxpayers with offshore operations should review their
cost-sharing arrangements to determine whether they want to restate
them in light of this ruling.
(Altera Corporation and Subsidiaries, 145 T.C. No. 3, July 27,
New tax legislation enacted
President Obama signed the Surface Transportation and Veterans
Health Care Choice Improvement Act of 2015 on July 31, 2015.
The legislation includes some important tax provisions.
- Effective for tax years beginning after December 31, 2015, the
initial due dates for income tax returns of partnerships and C
corporations will be changing. The partnership due date will change
from April 15 to March 15 (or 2 1/2 months after year-end). The due
date for S corporations will be unchanged at March 15 (or 2 1/2
months after year-end). The due date for C corporations will change
from March 15 to April 15 (or 3 1/2 months after the year-end),
except the due date for C corporations with tax years ending on June
30 will keep the September 15 due date until tax years beginning
after December 31, 2025 when it will become October 15.
- For years beginning after December 31, 2015, the due date for the
FBAR (Report of Foreign Bank and Financial Accounts) will be
changing from June 30 to be the same as for individual income tax
returns, April 15 with an extension available to October 15.
- For information returns due (without regard to extensions) after
December 31, 2016, mortgage servicers will be required to include
more information on Form 1098, the annual mortgage interest
- Effective for all returns for which the normal assessment period
remained open as of July 31, 2015, the statute of limitations has
been extended to six years when there is an overstatement of basis
resulting in an overstatement of income exceeding 25% of gross
income stated on the return. This legislation overturns the Supreme
Court decision in Home Concrete, 2012-1 USTC 50,315.
- Executors of large estates that are required to file estate tax
returns after July 31, 2015 will be required to report to
beneficiaries to value reported on the estate return for property
they receive. The date of death value reported on the estate tax
return will be controlling for determining tax basis of the property
when it is sold by the beneficiary.
- Effective for months beginning after December 31, 2013, an
individual won’t be accounted for as an employee for large employers
for required shared responsibility health care payments if that
individual has medical coverage for the month under a program for
members of the U.S. Armed Forces (TRICARE) or a VA health care
Gifts from non-resident aliens can be subject to U.S. Gift Tax
I recently attended an estate tax planning symposium. One of the
speakers reminded us that nonresident aliens (individuals who are
not U.S. citizens and live outside the U.S.) can be subject to U.S
gift tax when they make gifts of real estate or personal property
located in the United States. There is no exclusion except for the
annual $15,000 exclusion per donee, per donor. We most often see
this for gifts of real estate. Cash can also be personal property.
It’s best that transfers of cash be made outside the U.S., such as
by opening a bank account outside the U.S. (which will also be
subject to foreign bank account reporting, but not U.S. gift tax).
Gifts exceeding $100,000 (cumulative for the year) also have to be
reported by the donee on Form 3520. If a nonresident alien wants to
make a gift to a U.S. person, he or she should get professional
advice from a tax advisor familiar with the rules.
Does your group need a speaker?
We are seeking opportunities to speak before groups. Topics include recent tax developments, tax issues relating to real estate, how estate planning has changed recently, tax issues relating to alternative investments using retirement accounts, and marketing topics such as “How I created a public access television show broadcast on eleven Bay Area stations.” To make arrangements, call Michael Gray at 408-918-3161.
Please share your good experiences with Michael Gray, CPA.
As you know, more and more people are going to the internet to find information about service providers. We hope you will share some good words about experiences that you have had with our firm<. Some of the sites where you can share your experiences include yelp.com, siliconvalley.citysearch.com, and Google+.
Financial Insider Weekly broadcast schedule for August and
Financial Insider Weekly is broadcast in San Jose and Campbell on Fridays at 9:30 p.m., Pacific Time. You can watch it on Comcast channel 15 for San Jose and Campbell. The show is broadcast as streaming video at the same time at www.creatvsj.org.
Here are the scheduled interviews for August and September:
- August 28, 2015, Janis Carney, attorney at law, Carney Elder Law,
“Caring for seniors today: challenges in getting quality care”
- September 4, 2015, Janis Carney, attorney at law, Carney Elder Law,
” Paying for long-term care for seniors in California”
- September 11, 2015, Robert E. Temmerman, Jr., attorney at law,
Temmerman, Cilley & Kohlmann, LLP, “I’m an executor. Now what?”
- September 18, 2015, Robert E. Temmerman, Jr., attorney at law,
Temmerman, Cilley & Kohlmann, LLP, “I’m a trustee. Now what?”
- September 25, 2015, Peggy Martin, ChFC, CLU, The Family Wealth
Consulting Group, “Legacy planning”
Financial Insider Weekly is also broadcast as follows:
- Sunday at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
- Sunday at 1 p.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola
- Monday at 7:00 p.m. Pacific Time on cable channel 19 in Morgan Hill and broadcast on the internet at the same time as streaming video at www.mhat.tv
- Monday at 6:30 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
- Monday at 7:30 p.m. on Comcast channel 15 in Saratoga
- Monday at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
- Tuesday at 10:30 a.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola
- Tuesday at 2:30 a.m. and 12:30 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
- Tuesday at 7:00 p.m. Pacific Time on cable channel 19 in Morgan Hill
- Wednesday at 8:00 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
- Thursday at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
- Friday at 1:30 p.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
- Friday at 3:30 p.m. on KCAT, Comcast channel 15 in Los Gatos
- Friday at 4:00 p.m. on KMTV cable channel 15 in Cupertino, Los Altos and Mountain View
- 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”
- Friday at 8:00 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
- Saturday at 9:00 a.m. and 6:00 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
- Saturday at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
- Saturday at 1:00 p.m. on Comcast channel 26 and AT&T U-verse channel 99 in Marin County
Broadcast on the internet at the same time as streaming video at www.mhat.tv
Past episodes are available at https://www.youtube.com/user/financialinsiderweek.
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!
Michael Gray regrets he can no longer answer emails personally. He will answer selected questions in this newsletter. Email your questions to firstname.lastname@example.org.
See the books mentioned at http://http://www.siliconvalleypublishingcompany.com/products/secrets-of-tax-planning-for-employee-stock-options-2014-edition or the Special Report, Nonqualified Stock Options – Executive Tax and Financial Planning Strategies at http://www.stockoptionadvisors.com/stock/nqso-faq/.
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Check out my blog.
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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.
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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