Back dating stock

Consequently, a company that mistakenly believed that the stock option qualified for the performance-based exception under Code Section 162(m) may have deducted compensation paid to an executive in excess of

Consequently, a company that mistakenly believed that the stock option qualified for the performance-based exception under Code Section 162(m) may have deducted compensation paid to an executive in excess of $1 million in violation of Code Section 162(m).In this case, the company may have to amend its income tax returns and could be subject to interest and penalties for any additional income tax it owes.The amount subject to the additional 20% penalty tax could be any of the following: It is also possible that the tax could be determined as of the date of grant and then additional tax imposed if the option value increased on the later vesting dates.It is expected that the further guidance from the IRS will clarify the application of the 20% penalty tax to discount options.Depending on the number of affected options and the degree to which those options have been exercised, the liability for underpayment of employee withholding taxes could be substantial.Under Code Section 162(m), a publicly-held corporation’s deduction for compensation paid to its chief executive officer or to one of its next four highest compensated officers is limited to $1 million per year, except for payments that qualify as commissions or as "performance-based" compensation.The 20% penalty tax under Code Section 409A may also be avoided if the option holder makes an election with respect to a future date on which the discount option will be exercised.The fixed exercise date may be any date prior to expiration date of the applicable option.

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Consequently, a company that mistakenly believed that the stock option qualified for the performance-based exception under Code Section 162(m) may have deducted compensation paid to an executive in excess of $1 million in violation of Code Section 162(m).

In this case, the company may have to amend its income tax returns and could be subject to interest and penalties for any additional income tax it owes.

The amount subject to the additional 20% penalty tax could be any of the following: It is also possible that the tax could be determined as of the date of grant and then additional tax imposed if the option value increased on the later vesting dates.

It is expected that the further guidance from the IRS will clarify the application of the 20% penalty tax to discount options.

million in violation of Code Section 162(m).

In this case, the company may have to amend its income tax returns and could be subject to interest and penalties for any additional income tax it owes.

The amount subject to the additional 20% penalty tax could be any of the following: It is also possible that the tax could be determined as of the date of grant and then additional tax imposed if the option value increased on the later vesting dates.

It is expected that the further guidance from the IRS will clarify the application of the 20% penalty tax to discount options.

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Furthermore, any individual at the company who knowingly failed to withhold or pay income tax or FICA could be subject to personal liability for any such failure.reports on a study by the Harvard Law School that found 1,400 directors of public companies in the last decade to have been involved in the manipulation of stock options.As the news reports of back-dating of stock options continue unabated, companies who may be facing this problem should be aware of several potential Federal income tax issues.There are three main areas of concern: (i) violations of Section 409A of the Internal Revenue Code (the "Code"), (ii) failure for such options to qualify under the rules governing incentive stock options (ISOs), and (iii) exceeding the compensation deduction limits of Code Section 162(m).stock options with in-the-money exercise prices at their date of grant).The Proposed Regulations under Code Section 409A provide further that the fixed exercise date can be an entire calendar year.If an individual elects a fixed calendar year in which to exercise a discount option, and then fails to exercise the option within such calendar year, the option holder will forfeit the option.The cash or stock bonus could become vested or payable during 2006.Any cash payable pursuant to a vesting schedule would be subject to Section 409A unless the cash will be paid within two and one-half months after the calendar year in which the right to the cash payment vests.(3) Elect a Fixed Exercise Date.If the fixed exercise date is selected during the 2006 calendar year, then the date selected must be a date after December 31, 2006.(4) Discount Options Previously Exercised.To any extent a discount option has been exercised, there may not be a way avoid the penalties of Code 409A. Incentive stock options ("ISOs") are required to be granted at an exercise price that is no less than the fair market value of the stock on the date of grant.

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