Serving on Board of Directors

[JON]

my client, new this year, received options on the companys' stock. This year the company gets purchased. He receives a 1099-B from the company with gross proceeds of 18,059.99, in box 5 number of shares says 5000 in box 6 classes of stock exchanged it says OPTIONS. He says he has no basis in these and nothing was ever included in income previously for the options. Does this get included as regular income suject to SE first and then his cost basis and sales proceeds are equal on the Schdule D?

He actually had some shares of the company and that buyout and basis are on the brokerage statement(seperate 1099B) which handled the buyout. Basis was his computation and it was vaery little.

If you received options for serving on a Board you left 3 years ago and now get cashed out-is that ordninary SE income today????

[Kram BergGold]

My view

If the options were granted and exercised more than 2 years before the sale they would qualify for cap gain treatment. I don't think it matters that he got them for serving on a Board of Directors. If the exercise date was less than 2 years before the sale then I suggest you check out pages 46 and 47 in Lassers. Also there maybe should have been an AMT issue in the year of exercise but that is probably a dead issue.

[JON]

Try again

Options were never exercised and were granted when there was no or very little value in the corporation. Options were purchased by the acquiring company in 2006. My only questionis-if you received options because you were a director and now the value is established on the buyout is it ordinary income subject to SE??? In turn if you did that then the schedule D would be just a wash as the basis would equal the sales proceeds.

The 1099 his option to purchase 5000 shares it what was purchased from him. these options were non-qualifiing just done because he served on the Board on 1/15/02. Can we say the option is a capital asset held since 1/15/02, sold 2/1/06 and have a long term gain and forget about by ordinary income problem. He never exercised the option.... There is no AMT issue on this one..

Than You.

[gkaiseril]

As to the SE taxability of board of director fees, see page 86 of Pub 17, it is a form 1040 line 21, other income. Not subject to SE.

[JON]

Publication

seemed to say to me - Options received under a nonstaturtory plan for services rendered, the income earned when cashed is ordinary income. I will check on the SE, thanks for reminding me. I was hoping someone could point me on another path...