Stock-Option Tax Refunds Draw IRS Warning

SAN JOSE, Calif. -- The Internal Revenue Services fired a warning shot Friday at stock optionees who are seeking refunds on huge tax bills incurred during the stock-market meltdown, the San Jose Mercury News reported..

The agency's notice cited “frivolous'' legal arguments that some tax experts have used to seek tax refunds. The IRS said using such arguments could trigger civil and criminal penalties.

The IRS said it has received “dozens'' of tax returns making claims that draw on five legal positions that it considers “highly questionable, and in most cases, meritless.'' For example, the agency said it intends to challenge claims that:

• The tax should be based on the stock's price when the option is granted, rather than when the stock is actually purchased at a higher price.
• Investors who took out margin loans from stockbrokers and pledged their stock to secure the loan can claim an ordinary loss rather than a capital loss in some cases.
• A stock's value can be discounted if company rules forbid a worker from selling during certain conditions or so-called blackout windows.

-- NYSCPA.org News Staff

Posted on 3/30/04

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