The IRS has issued this press release via Benefitslink, announcing that it has issued new proposed regulations governing incentive stock options (“ISOs”). Under the ISO rules, employees have the ability to acquire employer stock without realizing income when the option is exercised. If the employee holds the stock for a required period, any gains on the sale of the stock are capital gains. In addition to restating the existing rules, the new proposed regulations include updated rules addressing current issues and practices, such as rules pertaining to ISOs issued by limited liability companies and other entities that elect corporate tax treatment. The proposed regulations which can be accessed here via Benefitslink will apply 180 days after publication of the final regulations. Taxpayers may rely on these proposed regulations for any ISO granted after June 9, 2003.
See also this article at myStockOptions.com which discusses the tax advantages of ISOs under the new Jobs and Growth Tax Relief Reconciliation Act of 2003: “How The Bush Tax Cuts Affect Your Stock Option Planning” by Tom Davison (free registration required).