Interesting People mailing list archives
IP: Re: Tech Workers' Stock Options Turn Into Tax Nightmares:
From: David Farber <dave () farber net>
Date: Fri, 13 Apr 2001 16:38:14 -0400
Date: Fri, 13 Apr 2001 13:33:32 -0700 (PDT) From: Vinod Valloppillil <vinod () vinod co Dave, I can give you a lot of "in the trenches" examples of this one. I've got friends who are mortgaging houses, selling cars, and carving out an extra grand or two from their monthly salaries due to AMT nightmares. And they're the lucky ones since these guys are generally older and therefore more likely to have hard assets to leverage. The people who are really screwed here are the 20-somethings who exercised some options but then never touched 'em. I can't emphasize enough that these aren't people driving Ferrari's but are instead individuals renting tiny studio apartments, driving used cars, and generally squeaking by on what most would consider a middle class lifestyle. They've suddenly got a tax bill that's not just bigger than their current stock value but also bigger than the sum of all salary they've made in their lifetimes. ------------------------------------------------------------------- Vinod Valloppillil vinod () vinod com http://www.vinod.com On Fri, 13 Apr 2001, David Farber wrote: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 techemployeesare 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 For archives see: http://www.interesting-people.org/
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- IP: Re: Tech Workers' Stock Options Turn Into Tax Nightmares: David Farber (Apr 13)