Private Equity/Venture Services

On June 29, 2009, the Internal Revenue Service (IRS) issued a ruling stating that it can seize and sell executive stock options regardless of contractual restrictions on transferability of the options.  This could present significant issues for public and private companies in the event their executives become subject to an IRS levy.

In the ruling, the IRS concluded that contractual restrictions on transferability of the options do not bar the IRS from seizing and selling options.  They reasoned that the Internal Revenue Code specifically lists certain types of property that are exempt from levy.  That list does not include stock options, and the IRS refused to recognize any exemptions not included in the statutory list.  Further, the IRS stated that the contractual transferability restrictions are specifically overridden by the terms of the Internal Revenue Code, regardless of the fact that the Internal Revenue Code itself requires incentive stock options to contain transferability restrictions.

Read the entire alert.