Therefore, Acme may not deduct Mike's compensation in excess of the
Therefore, Acme may not deduct Mike's compensation in excess of the $1,000,000 salary, which could cause a restatement of earnings of $10,000,000.||
Therefore, Acme may not deduct Mike's compensation in excess of the $1,000,000 salary, which could cause a restatement of earnings of $10,000,000.,000,000 salary, which could cause a restatement of earnings of ,000,000.
While the focus of the Securities and Exchange Commission ("SEC") centers on improper accounting practices and disclosures, thereby violating securities laws, a major yet little explored consequence to the scandal involves potentially onerous taxes on those who received these options.
Basically, a stock option is a contract right to purchase an amount of stock at a set price for a period of time.
This practice is called "bullet-dodging." To illustrate the effect of backdating options, consider Mike who is offered a job as CEO of Acme Corporation, a public company, on September 1st, when Acme's stock is worth $20/share.
As part of his compensation, Mike is offered a salary of $1,000,000 and 1,000,000 stock options that will vest immediately.
NEW YORK, Dec 6 (Reuters) - Two former Vitesse Semiconductor Corp executives were spared prison on Friday after pleading guilty to charges they fabricated company records in an attempt to obstruct an expected investigation into stock-options backdating. At a hearing on Friday, Rakoff called the situation “very unusual” and said he had considered imposing prison terms but decided not to, though “not without very serious doubt.” The judge also ordered the defendants to each pay a $30,000 fine.
Former Chief Executive Louis Tomasetta and Executive Vice President Eugene Hovanec were each sentenced to three years of probation by U. The defendants each faced up to five years in prison.Under the IRS initiative, employers will not report the additional taxes on the employee's W-2 and the employee will not be obligated to pay the additional taxes.Employers must submit a notice of intent to participate in the program by February 28, 2007.(Check to see whether the initiative has been extended).If the stock dropped below /share, the stock would be "under water"; therefore, the option would not be exercised, since the stock price is lower than the cost of exercising the option.Unlike the abusive corporate tax shelter ploys which often involve complex manipulation of a transaction to achieve tax results that are inconsistent with the economic reality of the deal, stock option backdating is a relatively crude device: A corporation merely changes the date that a stock option was actually granted to an earlier time when the stock price was lower.Mody, a former chief financial officer, and Nicole Kaplan, a former director of accounting, pleaded guilty to fraud in 2010 and cooperated with prosecutors.