About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1 Sec. Tax'n Newsl. 1 (1981-1982)

handle is hein.journals/newsqtrly1 and id is 1 raw text is: rA-Vb SECTION OF TAXATION co er - V.1No.1, FallI19OI Published by the Section of Taxation, American Bar Association New Tax Law Requires Immediate Attention Taxpayers should be prepared to give early attention to the effects of the Economic Recovery Tax Act of 1981. Changes in the tax law contained in the 1981 Act may require prompt revisions of documents such as wills, trusts, and deferred compensation plans. They may also require taxpayer elections and filing of amended returns to take advantage of the 1981 Act's retroactive application. Some of the important areas to which taxpayers should give early attention are highlighted below. Incentive Stock Options The 1981 Act introduces the incentive stock op- tion with respect to which taxpayers are accorded favorable tax treatment similar to that previously 1981 Act: ALI-ABA and ABA Courses and Publication The 1981 Act is the subject of four, detailed pro- grams co-sponsored by the Section and ALI-ABA. The first program took place on October 9 in Philadelphia and was carried by television satellite to more than 60 cities. The other 3 programs, co- sponsored with ALI-ABA by the Section of Real Prop- erty, Probate and Trust Law and the Section of Taxa- tion, were scheduled for October 4-6 (Las Vegas), Oc- tober 22-24 (New Orleans) and November 19-21 (Washington, D.C.). Attendance at the Las Vegas pro- gram exceeded 450 registrants. Even greater participa- tion is expected in New Orleans and Washington. The sessions are being co-chaired by Bernard M. (Bobby) Shapiro, National Director of Tax Policy, Price Waterhouse & Co., and by Mark L. McConaghy, Chief of Staff, Joint Committee on Tax- ation, U.S. Congress. In addition, in collaboration with authors designated by the substantive committees of the Sec- tion, the Committee on Continuing Legal Education supervised the preparation of a paperback book for publication by ALI-ABA summarizing and explaining the 1981 Act. For more information, contact Donald M. McClay, Director, Courses of Study, ALI-ABA, 4025 Chestnut St., Philadelphia, PA 19104; 215/243-1630. allowed taxpayers for restricted and qualified stock options. Thus, employees will pay no tax when they receive shares of stock on exercise of these options and will be taxed at capital gains rates when they sell their shares, while employers will receive no tax deductions in connection with the options or the shares. The new rules apply to options granted on or after January 1, 1976, and exercised on or after January 1, 1981, or outstanding on such date. This allows for substantial retroactive application. For the rules to ap- ply to an option granted in the retroactive (pre- January 1, 1981) period, however, the employer cor- poration must elect this application pursuant to a Treasury directive. For the retroactive period, there are special dollar limitations of both an annual and a cumulative nature. For each calendar year in the period, the total value of shares of employer stock for which an employee may be granted incentive stock options may not exceed $50,000. For the entire period, the total value of these shares may not exceed $200,000. It should be noted that there is a $100,000 annual limit that applies begin- ning in calendar year 1981. Value in all cases is deter- mined at the time the options are granted. Employers will want to consider carefully the extent to which they should sacrifice compensation tax deductions applicable to stock transferred under non- qualified stock options so that their employees may be favorably taxed. In addition, careful planning will be required in many cases to utilize the $50,000 and $200,000 retroactive limits in the most advantageous fashion. There is also a special clean-up provision under the 1981 Act. This provision allows employers a period of a year after enactment of the Act to modify options granted on or after January 1, 1976, and outstanding on the date of enactment, to cure defects preventing the options from qualifying as incentive stock options. These modifications, which are also permitted to be made to underlying option plans, will not result in the issuance of new options. Thus, where shares under old options have appreciated in value, it may make sense to use this clean-up rule, rather than to grant new op- tions at higher exercise prices. (See New Tax Law continued on page 5)

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most