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

Taxes and Incentive Stock Options, January 30, 2003 1 (January 30, 2003)

handle is hein.tera/crstax0377 and id is 1 raw text is: Order Code RS20874 Updated January 30, 2003 CRS Report for Congress Received through the CRS Web Taxes and Incentive Stock Options Jane G. Gravelle Senior Specialist in Economic Policy Government and Finance Division Summary Cases of individuals who have incurred large tax liabilities from the exercise of stock options and who, because of falling stock prices, had no earnings have caused some concern. This effect arises from the impact of the alternative minimum tax (AMT). There are a variety of potential legislative remedies that could be considered to rectify this problem. This report will be updated to reflect legislative developments. During the 107th Congress, the issue arose of individuals with stock options who have incurred a significant tax liability from exercising their stock options but who have not sold their stocks and might recognize relatively small returns from selling. An article in the Washington Post highlighted a number of cases of individuals who owed large tax liabilities on stock that had not earned them any return.1 This outcome may arise from lack of taxpayer awareness of the treatment of a certain class of options (statutory options) under the alternative minimum tax (AMT) which in combination with other rules can cause a large tax liability that cannot be offset with an offsetting loss when the stock price falls.2 A stock option confers a future right to purchase stock at a stated price. A stock option has value even if the right to purchase it is set at the current price, because purchase can be delayed and the stock may rise in value. Stock options can result in tax consequences that depend on the type of stock options: qualified (statutory) and non- qualified. 'Some Shocked at Tax Bills on Options, by Carrie Johnson, Washington Post, March 16,2001, p. El. 2 Another issue that had been raised about statutory stock options is whether the IRS would require employers to withhold income and social security taxes on exercise or disposition. The social security tax issue was less important when there was a ceiling on medicare taxes and when options tended to be confined largely to higher income individuals. This issue was settled temporarily when the IRS issued ruling 2001-14 on February 5, 2001, indicating that no withholding would be imposed before 2003; on June 25, 2002, the IRS indicated that it decided to abandon proposals to withhold these taxes. Congressional Research Service ** The Library of Congress

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