Michael Gray, CPA’s Option Alert #148
An irregular alert for issues relating to employee stock options
August 17, 2016
© 2016 by Michael Gray, CPA
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Table of Contents
- Estimated tax payments are due September 15
- Extended due date for most calendar year taxpayers except individuals is September 15
- Watch September 30 deadline for inherited IRAs
- ‘Tis the season for extensions
- Final regulations eliminate copy attachment requirement
- Income from most stock-based compensation is subject to Railroad Retirement Act tax
- 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
- Interested in our other newsletters?
- Consult with a tax advisor
Estimated tax payments are due September 15
The next due date for quarterly estimated tax payments is September 15. For most taxpayers, there is no California payment due because the first and second payments were “front loaded.”
Extended due date for most calendar year taxpayers except individuals is September 15
The extended due date for filing income tax returns of calendar year corporations, partnerships (including LLCs), estates and trusts is September 15. Be sure your tax return preparer has the information to complete your income tax returns.
Watch September 30 deadline for inherited IRAs
For an IRA inherited when the owner was deceased during 2015, the designated beneficiaries must be established by September 30, 2016. In order to qualify for an extended payout over the life expectancy of one or more beneficiaries, all of the beneficiaries must be individuals or certain trusts. Otherwise, the account must be distributed within five years after death. A non-individual beneficiary, such as a charity, can be eliminated from consideration by distributing its share by September 30, 2016. See your tax advisor for details.
‘Tis the season for extensions
If you need help preparing your income tax returns for which you have filed an extension, call Dawn Siemer at 408-918-3162 on Mondays, Wednesdays or Fridays to make an appointment.
Final regulations eliminate copy attachment requirement
The IRS has issued final regulations that eliminate the requirement to attach a copy of a Section 83(b) election to a taxpayer’s Federal income tax return. The regulations are effective for property transferred on or after January 1, 2016. Proposed regulations also eliminated the requirement for transfers of property on or after January 1, 2015 and before January 1, 2016.
(T.D. 9779, July 25, 2016.)
Income from most stock-based compensation is subject to Railroad Retirement Act tax
The Union Pacific Railroad filed a claim for refund of Railroad Retirement Act (RRA) tax for W-2 income for employees relating to nonqualified stock options, restricted stock and restricted stock units. The RRA tax is a substitute for the social security tax (FICA) for the railroad industry. There is an employer RRA tax and an employee RRA tax, like for social security taxes. (Note that ordinary income relating to incentive stock options and employee stock purchase plans isn’t subject to FICA and RRA taxes by statute.)
Union Pacific said there is an ambiguity in the Internal Revenue Code for compensation for railroads. Under Internal Revenue Code § 3231(d), compensation subject to RRA tax is defined as “any form of money remuneration paid to an individual for services rendered as an employee to one or more employers.” Since stock isn’t “money”, it shouldn’t be subject to the RRA tax.
In a summary judgment, a U.S. District Court ruled against Union Pacific and in favor of the Internal Revenue Service.
The Court said that “money” in this case was an adjective. The term is broad enough to encompass noncash compensation such as stock. The stock can be sold for cash. The Court also said the IRS has sufficient regulatory authority to define compensation to include stock-based compensation.
(Union Pacific Railroad Company, U.S.T.C. 50,353, July 1, 2016.)
Gifts from non-resident aliens can be subject to U.S. Gift Tax
A speaker at an estate tax planning symposium 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.
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Financial Insider Weekly broadcast schedule for July and August.
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 July and August:
- August 19 and 26, Charles H. Packer, attorney at law, Hopkins & Carley, “Succession planning issues of family businesses”
- September 2 and 9, Michael Desmarais, attorney at law, “But my spouse agreed!”
- September 16 and 23, Michael Desmarais, attorney at law, “Why don’t we just live together?”
- September 30, Craig Martin, CFP®, The Family Wealth Consulting Group, “The role of emotions in investing”
Financial Insider Weekly is also broadcast as follows:
- Sundays at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Sundays at 1 p.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola
- Sundays at 10:00 p.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Mondays at 1:30 p.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27
- Mondays at 6:30 p.m. on Midpeninsula Media Center, Comcast Channel 28 in Palo Alto, East Palo Alto, Stanford, Menlo Park & Atherton
- Mondays 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
- Mondays at 7:30 p.m. on Comcast channel 15 in Saratoga
- Tuesdays 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
- Tuesdays at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Tuesdays at 7:00 p.m. Pacific Time on cable channel 19 in Morgan Hill Broadcast on the internet at the same time as streaming video at www.mhat.tv
- Wednesdays 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
- Thursdays at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Fridays at 11:00 a.m. on Comcast channel 26 in Santa Cruz County and on Charter Communications Channel 72 in Watsonville and Capitola.
- Fridays at 3:30 p.m. on KCAT, Comcast channel 15 in Los Gatos
- Fridays at 4:00 p.m. on KMTV cable channel 15 in Cupertino, Los Altos and Mountain View
- Fridays at 6:00 p.m. on Comcast and Astound channel 29 in San Francisco. Online streaming video at www.bavc.org, “public access TV”
- Fridays 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
- Saturdays 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
- Saturdays at 10:00 a.m. in San Mateo County on PenTV, Comcast Channel 26 and Astound Channel 27.
- Saturdays at 1:00 p.m. on Comcast channel 26 and AT&T U-verse channel 99 in Marin County
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!
Question and Answer
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 www.employeestockoptionsecrets.com or the Special Report, Nonqualified Stock Options – Executive Tax and Financial Planning Strategies at www.stockoptionadvisors.com/non-q_stock.shtml.
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For general tax developments, tax planning ideas, business development ideas and book reviews, subscribe to Michael Gray, CPA’s Tax & Business Insight.
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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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(Michael Gray is the author of Secrets of Tax Planning For Employee Stock Options, Stock Grants and ESOPs.)