Statutory Stock Options? How to tell?


M

Medgya

I'm a US citizen working in Japan and received stock options from my
company (a Japanese firm) before we went public. How can I tell if,
from the US point of view, these are statutory ISO options or non-
statutory ones? Just reading some articles online, it seems that they
meet the qualifications for ISO, but how to get an authoritative
answer?

For what it is worth, in Japan the options are "qualified" which means
that they have treatment similar to that of American ISOs, but there
could easily be differences as well.

Thanks!
 
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R

removeps-groups

I'm a US citizen working in Japan and received stock options from my
company (a Japanese firm) before we went public. How can I tell if,
from the US point of view, these are statutory ISO options or non-
statutory ones? Just reading some articles online, it seems that they
meet the qualifications for ISO, but how to get an authoritative
answer?

For what it is worth, in Japan the options are "qualified" which means
that they have treatment similar to that of American ISOs, but there
could easily be differences as well.
This might be a starting point. Look at section (422)(b).

http://www.fourmilab.ch/ustax/www/t26-A-1-D-II-422.html
 
M

Medgya

This might be a starting point. Look at section (422)(b).

http://www.fourmilab.ch/ustax/www/t26-A-1-D-II-422.html
Thanks very much for that. I'd seen mention of these different
sections of the laws, but wasn't sure where to find them. It sounds
like our options may qualify, but is there a way to verify that such
that the IRS would be satisfied? The last thing I want is to find out
three years down the road that they disagree, and owe a bunch of
penalties.

My Japanese tax accountant seems reluctant to take responsibility for
such a judgment, and instead is suggesting that I pay an outside
accounting firm for an opinion. Is there a better way?
 
R

removeps-groups

Thanks very much for that. I'd seen mention of these different
sections of the laws, but wasn't sure where to find them. It sounds
like our options may qualify, but is there a way to verify that such
that the IRS would be satisfied? The last thing I want is to find out
three years down the road that they disagree, and owe a bunch of
penalties.
A good question. The requirements for statutory stock options are so
general, that I think even many non-qualified stock options would be
statutory.

At this point you should probably consult a tax attorney or request a
private letter ruling or determination. You can read about these
private letter rulings at:

http://www.wwwebtax.com/audits/private_letter_ruling.htm
http://www.irs.gov/irb/2007-01_IRB/ar06.html#d0e3227
http://www.irs.gov/newsroom/article/0,,id=151979,00.html

It's so confusing that I think you would need a PLR to request what is
user fee :) I think $275 for a determination might work. I'm not
sure what's the difference between a determination and private letter
($625).

There are attorneys that draft PLRs, so if you use them you could
expect to pay even more.
 
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A

Alan

Medgya said:
Thanks very much for that. I'd seen mention of these different
sections of the laws, but wasn't sure where to find them. It sounds
like our options may qualify, but is there a way to verify that such
that the IRS would be satisfied? The last thing I want is to find out
three years down the road that they disagree, and owe a bunch of
penalties.

My Japanese tax accountant seems reluctant to take responsibility for
such a judgment, and instead is suggesting that I pay an outside
accounting firm for an opinion. Is there a better way?
The following link has a very good explanation of what is
required to have an ISO. The writeup includes references to the
relevant sections of the IRC.
http://www.nceo.org/library/equity.html
 

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