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As drafted, the form IDR is unnecessarily broad and could be interpreted to require the disclosure of needless information.We have found the IRS receptive to amending the request to a more specific set of documentation which addresses the IRS's goals.Backdating of an option may prevent it from qualifying for the exception set forth in Treas. Backdating of a stock option might prevent such option from qualifying as an ISO as § 422(b)(4) requires that the option's exercise price be not less than the fair market value of the stock at the time such option was granted.Withholding issues may arise for a corporation if an option that was labeled an ISO is later found to have been misclassified.The Directive is significant, nonetheless, in that it signals a nationally coordinated effort within the IRS to target transactions involving backdated stock options, and also establishes mandatory audit requirements and centralized reporting procedures within the IRS as relating to backdated stock options.
Each of these three issues is identified and discussed briefly in the Directive.
It is not intended, and should not be regarded, as legal advice.
Readers who have particular questions about these issues should seek advice of counsel.
The IRS's interest in the tax implications of backdated options is not new.
We are currently working with a number of clients that have already received Information Document Requests ("IDR") from the IRS requesting information relating to the backdating issue.