IP: Re: Tech Workers' Stock Options Turn Into Tax Nightmares:

[David Farber <dave@farber.net>]

>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 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
> >
> >
> >
> > For archives see: http://www.interesting-people.org/
> >



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