Mercer Select US - IRS memo considers backdated stock options under 162(m)

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IRS memo considers backdated stock options under 162(m)

A recent IRS internal memo on backdated and misdated nonqualified stock options discusses how to determine the grant date when assessing whether options were discounted under Section 162(m). Besides analyzing the use of related accounting and tax standards to define the grant date, the memo concludes that discounted options can never qualify for exemption from 162(m)'s $1 million cap on deductible compensation. This disqualification applies even if the employee reimburses the discount or the option exercise price is reset to eliminate the discount. Some practitioners are criticizing the memo. (Select News, 26 Aug 2009)

Full text of memorandum AM2009-006 (IRS Chief Counsel's Office, 6 Jul 2009) (PDF)

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