Taxation of Options on the Issuer's Stock

Alvin C. Warren Jr.

Harvard Law School

Taxes - The Tax Magazine, Vol. 82, No. 3, March 2004

This paper reconsiders the tax policy question of whether gains and losses on options on the issuer's stock should be excluded from the corporate tax base. The principal conclusions are that nonrecognition provisions of current law are problematic, and that the appropriate legislative response depends on a range of considerations, including the function of the corporate tax and the appropriate treatment of employee stock options.

Part I briefly reviews the principal provisions of current law and identifies the role of the corporate tax that provides the tentative normative perspective of the paper. Part II illustrates the inconsistent taxation under present law of options and certain substantially equivalent transactions. Part III examines some combinations of options and substantially equivalent transactions. Part IV considers alternatives to the 1984 legislation. Part V provides a summary of conclusions.

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Date posted: April 17, 2004  

Suggested Citation

Warren, Alvin C., Taxation of Options on the Issuer's Stock. Taxes - The Tax Magazine, Vol. 82, No. 3, March 2004. Available at SSRN: http://ssrn.com/abstract=531842

Contact Information

Alvin C. Warren Jr. (Contact Author)
Harvard Law School ( email )
1575 Massachusetts
Hauser Hall 308
Cambridge, MA 02138
United States
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