(Archived Content)
FROM THE OFFICE OF PUBLIC AFFAIRS
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JS-1265
Today, the Treasury Department and the IRS issued a notice cautioning taxpayers against promoters who purport to offer ways in which the taxpayers can avoid income tax or alternative minimum tax (AMT) from the exercise of stock options. The notice warns taxpayers that any claims made by taxpayers will be treated as frivolous in appropriate cases and outlines the various civil and criminal penalties that could apply.
Acting Assistant Secretary for Tax Policy Greg Jenner stated, “We are alerting taxpayers to be wary of unsupported claims that stock option gains are not subject to income tax or AMT. Taxpayers should be very cautious about claiming refunds on this basis.”
There are two basic types of stock options – “nonstatutory stock options” and “statutory stock options.” Gains from the exercise of nonstatutory stock options are generally subject to ordinary income tax. Statutory stock options (which include incentive stock options) are not subject to ordinary income tax when they are granted to an employee or exercised by the employee. However, gains on statutory stock options are subject to AMT when the options are exercised.
The notice describes several claims that promoters are encouraging taxpayers to make for the purpose of claiming refunds of ordinary income tax or AMT on their stock options. The notice cautions taxpayers that these claims are often unsupportable and will be treated as frivolous in appropriate cases.
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