Regulators at the SEC have been keeping watch the last several years for the backdating of stock options. Nationwide, more than 140 companies are under investigation by the SEC and the Department of Justice (DOJ) for possible exploitation of employee stock option rules. This article focuses on the general treatment of stock options under federal income tax rules, tax issues involving backdated stock options, and strategies for complying with IRS inquiries during tax examinations. In general, the accounting rules for stock-based compensation, including stock options, require companies to measure compensation cost based on the fair market value at the grant date. The IRS mandates an information document request in all corporate examinations to determine whether backdated stock options are an issue. Much of the stock option backdating reported in the media appears to have been done prior to the 2002 enactment of the Sarbanes-Oxley Act, which requires grants of stock options to be reported within two days of grant.

Income taxes
Criminal investigations
Letter rulings