Transferable stock options

Article Abstract:

Providing executives with the option of transferability under employee stock option plans will allow for transfers to family members that may receive favorable gift tax treatment, but transferable stock options may increase the administrative costs of stock option plans. In the employee stock option context, the IRS has not resolved whether transfer of unexercised compensatory stock options constitutes a completed gift for tax purposes. Corporations wishing to allow transferability should review the terms of their plans and establish procedures that meet IRS and SEC requirements.

Compensation and benefits, Executives

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Deferred delivery of option stock

Article Abstract:

Recipients of stock options as compensation may be able to defer income recognition on exercised options by deferring the delivery of those stocks. Although the IRS has not ruled on the tax treatment of deferred delivery of stock, the stock option plan and the employee's election to defer delivery can be structured to minimize tax risks. To avoid application of the constructive receipt doctrine, the right to the shares should be unfunded and unsecured. Compensation limits and accounting treatment of stock options should also be considered.

Planning, Deferred compensation

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IRS rules that transferring stock options to family members or trusts does not cause employee to recognize income; applies broad definition of "immediate family."

Article Abstract:

The IRS ruled in two private letter rulings that transfers of stock options to family members or trusts benefitting family members did not trigger income recognition. In PLR 9713012, family members were narrowly defined, but in PLR 9714012, transferees could include parents, stepchildren, siblings, adopted children and others, including partnerships of family members. Gain would be recognized only when the stock options were exercised. The IRS did not address the tax consequences of the employee dying before the options were exercised.

Laws, regulations and rules, Family

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