To build a great business, you must first build a team of great people. Incentive planning for key employees is, accordingly, an important part of my law firm’s practice.
Human-owned businesses have at their disposal a number of different tools for retaining and motivating key people and the impact of income taxes, no surprise, is a major factor in distinguishing and choosing among them. Whether an incentive is equity or non-equity, qualified or non-qualified, current or deferred, you can bet that the IRS has rules for how that incentive is used or taxed.
So it was with some amusement that we read of one of the IRS’s latest rulings on stock options, specifically a subset of stock options called “Incentive Stock Options” or ISOs. The IRS has for years specified a number of hoops you and your employees have to jump through in order to claim the tax benefits of an ISO. One of those hoops has always been that the ISO had to be non-transferable, meaning that the stock option belonged to the employee and the employee only, and could not be sold or even given away.
Well, now the IRS is telling us that non-transferable really means the ISO can’t be transferred to anyone other than the IRS. If your employee gets into tax trouble, the IRS can seize the employee’s non-transferable ISO and sell that option right (transfer it) to pay off the employee’s tax debt.
Human-owned businesses have at their disposal a number of different tools for retaining and motivating key people and the impact of income taxes, no surprise, is a major factor in distinguishing and choosing among them. Whether an incentive is equity or non-equity, qualified or non-qualified, current or deferred, you can bet that the IRS has rules for how that incentive is used or taxed.
So it was with some amusement that we read of one of the IRS’s latest rulings on stock options, specifically a subset of stock options called “Incentive Stock Options” or ISOs. The IRS has for years specified a number of hoops you and your employees have to jump through in order to claim the tax benefits of an ISO. One of those hoops has always been that the ISO had to be non-transferable, meaning that the stock option belonged to the employee and the employee only, and could not be sold or even given away.
Well, now the IRS is telling us that non-transferable really means the ISO can’t be transferred to anyone other than the IRS. If your employee gets into tax trouble, the IRS can seize the employee’s non-transferable ISO and sell that option right (transfer it) to pay off the employee’s tax debt.
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