IP: Tech Workers' Stock Options Turn Into Tax Nightmares: ACM TechNews - Friday, April 13, 2001 READ IT AND WEEP

[David Farber <dave () farber net>]

Los Angeles Times (04/13/01) P. A1; Weston, Liz Pulliam; Huffstutter, P.J.; 
Healey, Jon

Tech workers who exercised stock options last year but did not sell them 
have seen the value of their shares plummet. Still, according to tax law, 
they have to pay taxes on the unrealized paper profits. Some tech employees 
are being saddled with millions of dollars in taxes that they have no way 
to pay. Jeffery Chou, a Cisco engineer, purchased 100,000 Cisco shares in 
March 2000 for 5 cents to 10 cents apiece. At that time, Cisco was trading 
above $60, meaning that Chou made an unrealized taxable profit of $1.8 
million.

Additionally, he bought the shares under an incentive option plan that 
encourages people to hold on to their stocks for at least one year instead 
of selling them immediately. The IRS allows employees who buy under 
incentive plans to sell their stock by Dec. 31 and pay only the actual 
profit, instead of the paper one. However, Chou, and many like him, missed 
the deadline and never considered the situation he is until now. He says 
his entire net worth still leaves him $700,000 short of his tax bill and 
protracted negotiations with the IRS will leave his family in financial 
limbo. For many of these workers, filing bankruptcy is not an option 
because recent tax debt is exempt from Chapter 7 coverage. Their only hope 
seems to be legislation pursued by Rep. Zoe Lofgren (D-Calif.), whose 
constituency includes part of Silicon Valley. His bill would alleviate at 
least some of the burden for those who bought stock under the incentive 
options plan.

http://www.latimes.com/business/cutting/lat_option010413.htm



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