Consequences of backdating stock options

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In some cases, the date of exercise, rather than the date of grant, was changed to an earlier date to convert ordinary income into capital gains.

In general, companies engaging in a classic backdating transaction chose a date when the stock price was at a low point and chose that favorable date as the grant date.

Expect IRS to aggressively pursue this cheating since it amounts to tax fraud and evasion, pure and simple, and is relatively easy to prove.

If the employee holds the stock for at least one year after the date of exercise and two years after the date of grant, he is entitled to the federal long-term capital gains tax rate of 15% on the spread.

As part of his compensation, Mike is offered a salary of

If the employee holds the stock for at least one year after the date of exercise and two years after the date of grant, he is entitled to the federal long-term capital gains tax rate of 15% on the spread.

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. However, by backdating the grant date to the date when Mike was offered the stock options (September 1st), the option price is lowered to $20/share and Mike receives built-in gain on the “spread” between the exercise price and the fair market value of the stock of $10/share or $10,000,000.

Stock Options Basically, a stock option is a contract right to purchase an amount of stock at a set price for a period of time.

For instance, if a stock was worth $10 a share, a stock option may grant an option holder the right to purchase $1,000 shares at $10 a share for a period of 5 years.

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If the employee holds the stock for at least one year after the date of exercise and two years after the date of grant, he is entitled to the federal long-term capital gains tax rate of 15% on the spread.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. However, by backdating the grant date to the date when Mike was offered the stock options (September 1st), the option price is lowered to $20/share and Mike receives built-in gain on the “spread” between the exercise price and the fair market value of the stock of $10/share or $10,000,000.Stock Options Basically, a stock option is a contract right to purchase an amount of stock at a set price for a period of time.For instance, if a stock was worth $10 a share, a stock option may grant an option holder the right to purchase $1,000 shares at $10 a share for a period of 5 years.

,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. 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.

Stock Options Basically, a stock option is a contract right to purchase an amount of stock at a set price for a period of time.

For instance, if a stock was worth a share, a stock option may grant an option holder the right to purchase

If the employee holds the stock for at least one year after the date of exercise and two years after the date of grant, he is entitled to the federal long-term capital gains tax rate of 15% on the spread.

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. However, by backdating the grant date to the date when Mike was offered the stock options (September 1st), the option price is lowered to $20/share and Mike receives built-in gain on the “spread” between the exercise price and the fair market value of the stock of $10/share or $10,000,000.

Stock Options Basically, a stock option is a contract right to purchase an amount of stock at a set price for a period of time.

For instance, if a stock was worth $10 a share, a stock option may grant an option holder the right to purchase $1,000 shares at $10 a share for a period of 5 years.

||

If the employee holds the stock for at least one year after the date of exercise and two years after the date of grant, he is entitled to the federal long-term capital gains tax rate of 15% on the spread.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. However, by backdating the grant date to the date when Mike was offered the stock options (September 1st), the option price is lowered to $20/share and Mike receives built-in gain on the “spread” between the exercise price and the fair market value of the stock of $10/share or $10,000,000.Stock Options Basically, a stock option is a contract right to purchase an amount of stock at a set price for a period of time.For instance, if a stock was worth $10 a share, a stock option may grant an option holder the right to purchase $1,000 shares at $10 a share for a period of 5 years.

,000 shares at a share for a period of 5 years.

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