Brad sent me a link to an article the other day regarding the IRS urging companies to pay the taxes owed by workers that received backdated options. This has been a subject that hasn’t gotten nearly the limelight that the actual backdating scandals have gotten.

If you remember from our 409A series, stock options that are priced below fair market value subject the recipients of these options to a 20% excise tax on top of normal income tax on the spread.

The IRS came out the other day and “suggested” that companies who have issued backdated / under priced options should pay these liabilities on behalf of their employees. I won’t even try to estimate how much this aggregate liability amounts to. I’m sure the amount adds up to a “$B” number.

What’s interesting is that the government will make some money and if companies comply with this, the IRS will only have to go after one tax payer, the corporation, not the individuals.

As critical as we’ve been of 409A, I don’t have a ton of sympathy with companies who blatantly backdated their options. Brad’s bet (and I concur) is that this “suggestion” gets codified into the code when the final 409A regulations are published