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IRS MAKES A TAX SHELTER SETTLEMENT OFFER TO EXECUTIVES - CAN THEY REFUSE?
February 22, 2005
The IRS has issued a blanket settlement offer for a widely-sold tax shelter for corporate executives involving stock options.
The plan, which was sold by national accounting firms (most famously to Sprint executives), involves executives "selling" stock options to family partnerships using long term notes at bargain prices. Normally an executive recognizes salary income when a stock option is exercised, to the extent the value of the stock exceeds the exercise price. The shelter tried to shift the income to other family members, and to defer it over a period of up to 30 years.
The plan would require executives to pay all of the taxes on the options, but only half of the 20% penalty that the IRS would otherwise seek.
The IRS listed this transaction as "abusive" in Notice 2003-47.
The deadline for taking the offer is May 23, 2005.
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