Steve jobs back dating stock 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.However, by backdating the grant date to the date when Mike was offered the stock options (September 1st), the option price is lowered to /share and Mike receives built-in gain on the "spread" between the exercise price and the fair market value of the stock of /share or ,000,000.Assuming Acme backdated the stock options to September 1st, what are the tax consequences to Mike and the company? 162(m) states that a public corporation may claim a tax deduction for compensation paid to its CEO and its four other highest-paid executives, but only if strict requirements are met.The stock option backdating scandal shows no signs of abating and the newly-discovered backdating of the date of exercise may give corporate American another black-eye.Expect IRS to aggressively pursue this cheating since it amounts to tax fraud and evasion, pure and simple, and is relatively easy to prove.

In other situations, when a company believes its stock would dramatically increase in value based on a future event, options are granted just prior to the favorable event. Another type of backdating occurs when the company will announce bad news that could temporarily depress its stock price.Another variation on the stock option backdating scheme has emerged.Instead of merely backdating the grant date to achieve a lower exercise price, the SEC has begun investigating whether executives have backdated the exercise date.There are two potential tax advantages in this scheme: First, the earlier the date of exercise, the sooner the 12-month period will be reached for the favorable 15% long-term capital gains rate.In addition, by choosing an exercise date in which the stock had a low value, the executive converts potential ordinary income into capital gains.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%!

You must have an account to comment. Please register or login here!