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To: tcmay who wrote (173090)	2/17/2003 1:56:27 PM
From: GVTucker	Read Replies (2) \| Respond to of 186894

tcmay, RE: What FASB does is not even the most important issue. The IRS should begin taxing options as items of value, at the time of grant. This will cause the necessary accounting changes to happen immediately. FASB is indeed not the most important issue. It isn't nearly as important as most people think, on both sides of the debate. On the IRS side of the coin, options already are taxed as items of value, albeit at time of exercise, not time of grant. The employee pays tax on the imputed gain when exercised, and the corporation receives a tax break for that same imputed gain, essentially writing that off as a compensation expense. Yes, it would be more accurate to tax things at time of grant, but over the long haul, the actual value at time of exercise will end up equaling the value at time of grant. And it makes more sense not to tax people on something unless they've realized the gain in a currency that they can pay the tax with.

To: tcmay who wrote (173090)	2/17/2003 2:37:04 PM
From: NITT	Read Replies (1) \| Respond to of 186894

re:"But if I am paid, say, $5000 for an option I sell to Dorenda to buy my current house for $500,000, then that is _income_ to me. And an _expense_ to Dorenda. And if Dorenda's employer buys that option for _her_, then he has given her a $5000 gift/bonus. And thus the tax code already takes care of how these things are handled" I believe that the in your scenario, that if it is truly an option (the buyer does not have to purchase the property), then the $5000 does not become subject to income taxes until the option is either exercised or it expires. Not sure what this does to your concept. I believe the issue is establishing a fair way to value an option that is not salable and is subject to remaining employed. My belief is that as long as the tax man can collect taxes on once the option is exercised (in the case of non-qualified options) or when they are sold (in the case of qualified options), then the only thing a corporation should be required to do is clearly report what options are being granted and at what price... and possibly to what class of employee. Nitt

To: tcmay who wrote (173090)	2/17/2003 5:05:43 PM
From: Windsock	Read Replies (2) \| Respond to of 186894

There are some big valuation problems for stock options whether you look at the company treatment as an expense or as income for the employee. First consider the case for a company that has an employee who leaves and surrenders the 4 or 5 years worth of options in the pipeline. Does the company now get to declare "earnings" for the value of the returned options? This could really distort earnings particularly for older options if the stock has risen in value considerably. Now consider the employee. What happens when (s)he leaves the company company? Are the tax payments for the options returned or do you treat the option surrender as a "capital loss" that can only be offset for the most part against a capital gain? The same problem arises for vested options that are underwater and expire or are abandoned when the employee leaves. Stock options that are traded on the open market have accurate market-value pricing and answers for these questions but employee stock options have some very large issues.

To: tcmay who wrote (173090)	2/17/2003 7:35:11 PM
From: RiceTrader	Respond to of 186894

One market driven solution to valuing the option would be to just use the existing option market to purchase the options. Exec A needs an option at X dollars then just buy it in the market place and hold it in trust for the Exec. The accounting value would be the amount paid for the option. This system would certainly prevent cheap insider options from flooding the market, solve the accounting issues and provide more transactions for the brokerage industry.