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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: rkral who wrote (119907)	6/5/2002 3:47:35 PM
From: slacker711	Read Replies (1) \| Respond to of 152472

Argument A: With the tax benefit allowed, Uncle Sam pays the $20 it gets from the employee to the company. Uncle Sam ends up with $0. Therefore, we have "zero taxation". Argument B: With the tax benefit disallowed, Uncle Sam gets $20 from the employee, and another $20 from the company. Uncle Sam ends up with $40. Therefore, we have "double taxation". Wouldnt your two arguments be equally true for normal employee compensation? Slacker

To: rkral who wrote (119907)	6/5/2002 3:55:35 PM
From: Stu R	Read Replies (1) \| Respond to of 152472

Ron: Argument A: With the tax benefit allowed, Uncle Sam pays the $20 it gets from the employee to the company. Uncle Sam ends up with $0. Therefore, we have "zero taxation". Argument B: With the tax benefit disallowed, Uncle Sam gets $20 from the employee, and another $20 from the company. Uncle Sam ends up with $40. Therefore, we have "double taxation". Interesting. A shell game with logic. Or "a little logic is a dangerous thing". Which argument is correct? Argument B is correct. What is missing from argument A is the tax paid on the income earned in the company (assuming there is income). If a company receives $1 in revenue and has no expenses, it pays tax on the dollar. (This is the first tax). If the company hires an employee and pays with non-cash options and isn't allowed to deduct it from revenue (similar to treatment on the financials) for tax purposes it is still paying the 'first tax'. Then the employee must pay tax on the non-cash compensation creating the second tax on the same original $1 of revenue. This is similar to the double tax that exists on dividends. The company receives no deduction on distributions of dividends and the stockholder must pay tax on dividend. This is the commonly referred to as corporation double tax and the underlying reason many entities choose to be partnerships, LLCs, and sub S corps. If IRS did not allow for deduction of options compensation as it does it would be getting more (twice?) taxes for non-cash options compensation than for cash compensation. Seems reasonable and fair which for the tax code is not always the case. Stu