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Backdating Stock Options

FEBRUARY 2008 - The article “Backdating Employee Stock Options: Tax Implications” (In Focus, October 2007), contained two inaccuracies. The authors and editors regret these errors.

The article as published says, on page 27, third column, third full paragraph: “In the year of grant, the bargain element is an alternative minimum tax (AMT) adjustment added to taxable income.” The sentence should read: “In the year of exercise, the bargain element is an alternative minimum tax (AMT) adjustment added to taxable income.”

Also, page 28, middle column, second full paragraph reads:

IRC section 409A does not affect options vested and earned before 2005. Options issued in 2004 and exercised in 2006 or 2007 would, however, be subject to these provisions. Also exempt are ISOs [incentive stock options] and all NSOs [nonqualified stock options] granted with an exercise price that is less than the FMV [fair market value] of the company’s underlying stock on grant date.

Instead, it should read:

Options issued in 2004 (and not vested in 2004) and exercised in 2006 or 2007 would, however, be subject to these provisions. Also exempt are ISOs and all NSOs granted with an exercise price that is not less than the FMV of the company’s underlying stock on grant date.