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Also, Mike has ordinary income on the date the options are exercised and could be subject to much harsher rules under IRC Sec.409A instead (discussed below). 409A, was enacted after the Enron scandal and targets deferred compensation schemes, including in-the-money options granted before October, 2004 and vesting after December 31, 2004. 409A applies, Mike is taxed on the spread (,000,000) at the time his stock options vest, not when he exercises them. 409A triggers a 20% excise tax penalty in addition to the immediate income tax, plus interest (currently about 9% per annum, plus a 1% per year interest penalty) and potentially an accuracy-related penalty of an additional 20%!

Backdating the date of exercise, rather than the date of grant, provides the employee with a double tax benefit and does not run afoul of IRC Secs. 422, since these code provisions address in-the-money options on the date of grant, not exercise.Unlike the abusive corporate tax shelter ploys which often involve complex manipulation of a transaction to achieve tax results that are inconsistent with the economic reality of the deal, stock option backdating is a relatively crude device: A corporation merely changes the date that a stock option was actually granted to an earlier time when the stock price was lower.Thus, the option becomes "in the money", meaning there was a built-in profit on the underlying stock, on the grant date.As part of his compensation, Mike is offered a salary of

Backdating the date of exercise, rather than the date of grant, provides the employee with a double tax benefit and does not run afoul of IRC Secs. 422, since these code provisions address in-the-money options on the date of grant, not exercise.

Unlike the abusive corporate tax shelter ploys which often involve complex manipulation of a transaction to achieve tax results that are inconsistent with the economic reality of the deal, stock option backdating is a relatively crude device: A corporation merely changes the date that a stock option was actually granted to an earlier time when the stock price was lower.

Thus, the option becomes "in the money", meaning there was a built-in profit on the underlying stock, on the grant date.

As part of his compensation, Mike is offered a salary of $1,000,000 and 1,000,000 stock options that will vest immediately.

The board of directors approves the compensation package on November 1st, when Acme's stock is worth $30/share.

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Backdating the date of exercise, rather than the date of grant, provides the employee with a double tax benefit and does not run afoul of IRC Secs. 422, since these code provisions address in-the-money options on the date of grant, not exercise.Unlike the abusive corporate tax shelter ploys which often involve complex manipulation of a transaction to achieve tax results that are inconsistent with the economic reality of the deal, stock option backdating is a relatively crude device: A corporation merely changes the date that a stock option was actually granted to an earlier time when the stock price was lower.Thus, the option becomes "in the money", meaning there was a built-in profit on the underlying stock, on the grant date.As part of his compensation, Mike is offered a salary of $1,000,000 and 1,000,000 stock options that will vest immediately.The board of directors approves the compensation package on November 1st, when Acme's stock is worth $30/share.Stock option backdating has erupted into a major corporate scandal, involving potentially hundreds of publicly-held companies, and may even ensnare Apple's icon, Steve Jobs.While the focus of the Securities and Exchange Commission ("SEC") centers on improper accounting practices and disclosures, thereby violating securities laws, a major yet little explored consequence to the scandal involves potentially onerous taxes on those who received these options.Employers must submit a notice of intent to participate in the program by February 28, 2007.(Check to see whether the initiative has been extended).When an incentive stock option ("ISO") is issued under IRC Sec.Here's how: Assume Mike receives 100,000 options on January 1, 2006 with an exercise price of $20/share and exercises them on July 1, 2006 when the stock is worth $50/share.Mike will have $3,000,000 of ordinary income on the date of exercise (100,000 x the spread of $30/share).

,000,000 and 1,000,000 stock options that will vest immediately.The board of directors approves the compensation package on November 1st, when Acme's stock is worth /share.Stock option backdating has erupted into a major corporate scandal, involving potentially hundreds of publicly-held companies, and may even ensnare Apple's icon, Steve Jobs.While the focus of the Securities and Exchange Commission ("SEC") centers on improper accounting practices and disclosures, thereby violating securities laws, a major yet little explored consequence to the scandal involves potentially onerous taxes on those who received these options.Employers must submit a notice of intent to participate in the program by February 28, 2007.(Check to see whether the initiative has been extended).When an incentive stock option ("ISO") is issued under IRC Sec.Here's how: Assume Mike receives 100,000 options on January 1, 2006 with an exercise price of /share and exercises them on July 1, 2006 when the stock is worth /share.Mike will have ,000,000 of ordinary income on the date of exercise (100,000 x the spread of /share).

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  1. Jun 05, 2006 In November 2005, a publicly-traded company announced the resignation of three of its top executive officers following an SEC investigation into the backdating of stock option grants.

  2. A study in CEO greed. crying loudest from the developing scandal of backdating stock options is. for the digital revolution and for SEC rules on executive.

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