Options transferred in divorce considered income.* As part of a divorce agreement, a man transferred half his incentive and nonqualified stock options to his ex-wife. She later exercised the options, and the corporation issued a form 1099 to the ex-husband showing the bargain element (the difference between the stock's fair market value and the exercise price) as compensation income. He included this on his tax return but later filed a refund claim. In field service advice no. 200005006, the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. concluded that the stock options were exchanged for the release of marital rights marital rights n. an old-fashioned expression for the rights of a husband (not rights of a wife) to sexual relations with his wife and to control her operation of the household. (See: consortium, loss of consortium) or property. Therefore the transfer was at arm's length arm's length adj. the description of an agreement made by two parties freely and independently of each other, and without some special relationship, such as being a relative, having another deal on the side or one party having complete control of the other. and subject to IRC (Internet Relay Chat) Computer conferencing on the Internet. There are hundreds of IRC channels on numerous subjects that are hosted on IRC servers around the world. After joining a channel, your messages are broadcast to everyone listening to that channel. section 83, which states stock options are taxable when transferred. The service said the ex-husband had compensation income equal to the fair market value of the options on the date of transfer. Also, when the ex-wife exercised the options, there were no tax consequences to either party. However, when she sells the stock, the ex-wife will be taxed on the difference between the stock's selling price and her basis (the carryover carryover n. in taxation accounting, using a tax year's deductions, business losses or credits to apply to the following year's tax return to reduce the tax liability. (See: carryback) basis from the ex-husband plus her exercise price). The IRS anticipated that the ex-husband might wish to argue that IRC section 1041 shields him from tax. Section 1041 prevents gains from being taxed on a transfer to a former spouse incident to a divorce, so the Service noted the ex-husband's compensation was ordinary income and not a "gain." |
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