Sec 83(b) not available on options. oops - my bad

I found this website that says Sec 83(b) only applies to
stock, not options.

http://www.fairmark.com/execcomp/sec83b.htm

So you need to look at the rules of Sec 83(b) further to see
if you can use this election.

Caution - If you can make the election, the election must be
made 30 days after receiving the property.

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Taxbert <Taxbert[at]hotmail.com> wrote:
- quote -

FMV of an ATM call option on a new company (estimated 50%
volatility) for 4 years is 40-50% of the stock price. Discount
thhat for the fact it isn't guaranteed to go IPO.

- quote -

If it expires worthless, isn't there a capital loss equal to
the "cost" (the amount on which tax was paid), just as if he'd
been paid cash and used it to buy the option?

Seth

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Dick Adams <rdadams[at]smart.net> wrote:

- quote -

Good idea in this situation. Options either not publicly
traded or on stock not publicly traded are supposed to be
valued using the Black-Scholes model.

That about exhausts my knowledge on the topic.

--
Bruce Davidson Cantor, CPA, JD
Admitted in Colorado

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"Dick Adams" <rdadams[at]smart.net> wrote:

- quote -

option in income now, then when you exercise there is no
income, then when you sell it is all capital gain (less the
income you picked up which is your basis).

Down side - if you never exercise the option there is no
loss or deduction for the income you picked up.

Bert


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Dick Adams <rdadams[at]smart.net> wrote:

- quote -

Check out to see if the company is issuing ISO's to employees,
and what theie exercise price is. Per IRS regulation, the
exercise price of an ISO cannot be below FMV. So that sets
an upper limit on the FMV per share. Then compare the
option price given to the consultant to that FMV. If it
is subtantially higher than the FMV (and you can bet it is),
then the options are worth very close to zero.

(IMO Consultant should instead be working in exchange for
common stock rather than this future-priced option.)

Steve

Moderator: Excellent point, Steve.

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Non-public business is planning an IPO in 2007. Consultant
is willing to do work in return for an option to purchase the
company's stock at the IPO price four years after the IPO
date.

How do you value the stock option for the tax year the option
is received? Presume the option is for 10,000 shares and the
IPO price will be $10 a share.

The consultant believes the resulting exercise of the option
is a capital gain if he declares an ordinary income value for
it and pays the apporpriate taxes in the year received. My
response was "That's logical; too bad logic is not part of
the tax code." <G
Dick

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