eHow strikes again: Section409A and Stock Options

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Some employers offer their employees deferred compensation in the form of stock options. These private
call options give owners the right, but not the obligation, to buy shares of company stock on or before an
expiration date at an exercise price established on the date the options were issued. If the options do not
carry certain tax benefits, they are deemed "non-qualified stock options" (NQO) and may be subject to
Internal Revenue Service Section 409A.

IRS Section 409A

1. IRS Section 409A became law in 2005 in the wake of corrupt deferred
compensation practices at Enron Corporation. Section 409A regulates the
definition of deferred compensation, the penalties for noncompliance with
the regulation, deferral and distribution rules and reporting requirements.
All stock options subject to the rule are "non-qualified," which means they
do not qualify for long-term capital gains taxation of profits. A deferral plan's
failure to comply with 409A can result in penalties that include taxation of
vested amounts, a 20 percent excise tax and late payment interest.

Stock Options as Deferred Compensation

2. Section 409A includes stock options as a form of deferred compensation if
service is provided and subject to payment in one year (the service year) but
is not paid until a future year. Stock options are issued

Read more: About Section 409A Stock Options | eHow.com http://www.ehow.com/
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