If you received and exercised stock options, and had to pay taxes on the phantom income, I have got some good news for you:

Buried in the $700b TARP Bailout is this AMT tax amendment:

“Their tax nightmare was created by a provision of the Internal Revenue Code called the Alternative Minimum Tax, or AMT. These tech workers had been granted what’s called an incentive stock option. Under the AMT, these are taxed at the time employees exercise the right to buy them, based on the difference between the grant price and the exercise price. During the dot-com era, when stock prices soared to dizzying heights, employees could have a stock option that was granted at less than a dollar but that he or she exercised at more than $100 a share.”

Granted, this applies to a relatively small pool of employees nationwide — those people who benefit recieve some form of compensation in the form of stock options.

We shall assume that some measure of relief will find its way to the various Wall Street denizens of Bear Stearns, Lehman Brothers, and anyone else who paid income tax on exercised stock that is now worthless — or worth far less — than the excercise price. Granted, this is only a small measure of comfort via the AMT modification, but it may rescue some out of work people lots of money they never should have paid in the first place.

Why this is in the bailout plan, I have no idea . . .


Hat tip:  GMSV

Guide to ISO-AMT in HR 1424


HR1424Final (PDF)

Rescue bill offers relief to some valley taxpayers hit with the AMT
Pete Carey
Mercury News 11/10/2008 06:36:48 PM PST


Category: Bailouts, Options, Taxes and Policy, Wages & Income

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

17 Responses to “Good News on Stock Options & AMT”

  1. babycondor says:

    I think you meant to quote something else.

  2. philipat says:

    Normally, incentive stock options vest after a specified period. Generally, folks exercise and sell at the same time if and when they are in the money.

    It would be wishful thinking that there is growing recognition of the value for stock options in the remuneration of Bankers? The good thing about stock option shemes is that in general they better align the interests of employees and shareholders over the longer haul and do not encourage short-term measures with the objective of earning short-term mega bonuses for the employee at the future cost to the shareholders (aka take the money and run)

  3. VoiceFromTheWilderness says:

    Is that actual language from the TARP bill? Assuming it is…

    Let me get this straight, they don’t have time to fleshout the details of their plan before voting on it, but they do have time to wax all socioligical on occurences in the 1990′s? Even more, they evidently feel that somehow blathering on about an experience people had 10 years ago has something to do with why they are bailing out financial corporations? Or… is it something else? Is this just another example of using other people’s troubles as cover for the real reasons why they are doing something. Just more Republican, Politician con-artistry.

    The disingenuity of the explanation, demands that we decide for ourselves what we think the real reason is. Hmmm, let me think, are there any other classes of individuals who often recieve compensation in the form of stock options? Why yes, Batman, I do believe there are. Typically senior and not so senior officers of large financial corporations recieve significant compensation in the form of stock options. Gee, huh, that’s funny. You’d think that since the financials are the problem, the government wouldn’t be increasing the benefits of running one of them into the ground. Wouldn’t you?

    You would if you are an idiot and you think that what Hank Paulson is doing is ‘bailing out homeowners’, else-wise, meesa thinks you would have expected this little extra-legal trick. Wow two, two tax code re-writes in one, one treasury action. It’s not a two-fer though, it’s a three-fer, since the TARP’s main purpose is to give them cash anyway.

  4. VoiceFromTheWilderness says:

    To philipat: Dude, wake up and smell the coffee. The grand myth of the 80′s has just gone down in flames right out side your window. Incentive Stock options do not align the interests of management and shareholders. They motivate management to use corporate resources to manipulate stock prices to their own benefit. That’d be why the market is tanking, because the interests of the management of financial corporations is served by inflating prices on worthless assets, and recieving actual american cash or things easily converted to cash like stock options as ‘payment’.

    You may not have noticed, but the owners of those corporations are losing their shirts while the management has just achieved a new level of wealth heretofore unheard of.

    But keeping spouting those 80′s truisms, maybe they’ll let you serve them coffee in their club.

  5. philipat says:

    To Voice in the Wilderness:

    You’re mixing your metaphors.

    My point is that in general incentive stock options don’t vest for at least 5 years. It’s very difficult to keep a leaky ship afloat that long. And its better than paying annual mega bonuses, UNLESS there are claw back clauses involved, which will never happen. There will never be an ideal method for exec comp BUT it is far better to tie it in some way to LONG TERM performance of the Company and, therefore the share price. Emphasise the LONG TERM.
    There are no incentives for exercising options which are not in the money. Tough, perform! There are also no incentives to execise and hold because you need to put your own money up AND pay taxes. If you did, tough, perform! The shareholders have lost out and it was your own decision, so I agree that the idea of a retroactive tax credit against a nominal gain at that time is absurd.

  6. Ken H. says:

    bad news is that this is no longer a free market and no longer a Democracy. Remember 90% of constituents told their rep VOTE NO yet they voted yes ….anyway for TARP. Talk about a lack of confidence. this is unraveling fast so who cares about your good news. Not to offend?

  7. Bruce in Tn says:

    Hooray for our side!

    Tonight the Nikkei is 8200…

    Today the DOW is 8200…

    I think we might just win the race to the bottom….

    Hooray for our side!!!

    (Can we use the TARP to bailout Barry’s toes??)

  8. leftback says:

    Yo, Bruce, I put some toes in today, hope I still have feet by Friday.
    A burger says we finish the week above SPX 890.

  9. philipat says:

    Ken H: “no longer a Democracy”

    It’s a representational decocracy. You don’t like the representation, you vote the bums out, as the GOP just noted. That having been said, Stevens is still neck and neck in Alaska and, yes Alaska is different but, ultimately in a democracy, you get the Government you deserve?

  10. philipat says:

    Bruce in Tn:

    Hooray for our side!

    Tonight the Nikkei is 8200…

    Today the DOW is 8200…

    I think we might just win the race to the bottom….

    Hooray for our side!!!”

    No problem, the US will win. Japan, a tiny island state, has created the second largest economy in the world by being a selfless society. Japanese managers work for the Company and Society, not like in the US where CEO’s work to make themselves rich. Japanese managers have absurd Company expense accounts but only for the Company and in the best interests of the Company and society. They take very little home and live in shoe boxes. And what they do take home, most of it is saved.

    You may not like it, but the mercantile model is alive and well. And will probably prevail.

  11. peachin says:

    Why in TARP? For the same reason that there probably will be something like a NOL – Net Operating Loss Carryover – which can be carried back 3 years and forward a number of years – in going back 3 years
    it will only (in those 3 years) bring back the excess of AMT over Reg Tax as a refund in those years. Now, most of those AMT excesses were paid over 3 years ago. Maybe they will be allowed to “mitigate” the “closed year law” and let them take the particular amount back to when it cost the taxpayer. Mitigation of closed years is not uncommon – esp. with this attachment to the new law.

  12. leftback says:

    @ philipat: thanks for putting a word in for Japan. they get a bad press, much worse than they deserve, although they did play a role in global imbalances by keeping interest rates artificially low and yen too weak for years.

  13. DisciplinedInvesting says:


    You ask why the AMT option language is in the package. Tell me why this is in the package:
    H. R. 1424—117, Subtitle B—Paul Wellstone and Pete Domenici Mental Health Parity and Addiction
    Equity Act of 2008.

    In the case of a group health plan (or health insurance coverage offered in connection with such a plan) that provides both medical and surgical benefits and mental health or substance use disorder benefits, such plan or coverage shall ensure that—
    ‘‘(i) the financial requirements applicable to such mental health or substance use disorder benefits are no more restrictive than the predominant financial requirements applied to substantially all medical and
    surgical benefits covered by the plan (or coverage), and there are no separate cost sharing requirements
    that are applicable only with respect to mental health or substance use disorder benefits; and
    ‘‘(ii) the treatment limitations applicable to such mental health or substance use disorder benefits are
    no more restrictive than the predominant treatment limitations applied to substantially all medical and
    surgical benefits covered by the plan (or coverage) and there are no separate treatment limitations that are applicable only with respect to mental health or substance use disorder benefits.

    The above is another reason for employers to lay off employees now. Talk to any insurance agent and this will add an enormous cost burden to employers.

  14. kaleberg says:

    I also found out that you can get fully vested by dropping dead walking down the street. (This happened to a friend of mine, not me.) You pay taxes when you buy the options based on the difference between what you pay and what you would get that day if you sold. That sets the basis price. If it goes to zero, you get a tax loss. That isn’t the same as winning big, but it can be worth something.

  15. KJ Foehr says:


    Now it’s the e-bully pulpit (or is that the bully e-pulpit?)

    Obama to pioneer Web outreach as president

    By BETH FOUHY, Associated Press Writer Beth Fouhy, Associated Press Writer – Wed Nov 12, 6:10 pm (excerpt)
    NEW YORK – Transition officials call it Obama 2.0 — an ambitious effort to transform the president-elect’s vast Web operation and database of supporters into a modern new tool to accomplish his goals in the White House. If it works, the new president could have an unprecedented ability to appeal for help from millions of Americans who already favor his ideas, bypassing the news media to pressure Congress.
    “He’s built the largest network anyone has ever seen in politics, and congressional Republicans are clueless about the communications shift that has happened,” Democratic strategist Joe Trippi proclaims. The results, he says, “will be amazing to watch.”

    Change has come to America!

    And it’s not just a slogan.

  16. davecjohnson says:

    This is GOOD news?

    I had stock options in the 90′s. I sold stock to cover the tax at the time. It cost me a little bit. So I was a CHUMP. The ones who decided to wait and not cover the taxes because stocks always go up and they wanted to clean up … well now they get this bailout.

    I did the right thing and I’m out. They were greedy, they win.

  17. Its more nuanced then that — what happens when, as an insider, you have a lock up agreement — no sales for a 1 or 2 years after exercise?

    You did everything legally, but ended up with a giant loss, and phantom income, and a big tax bill.