Stock option questions - sold years ago, what to do now?!

J

Jugovic

Registered User
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Hi all,

I have some some questions with regard to stock options that I sold a few years ago but unfortunately have not paid any tax on them (believe that to be Relevant tax on a Share option?). Stupid of me to wait until now but want to sort it out now even though the revenue has not chased me yet - although the amounts involved are not that big.

Details are below. I exercised the stock options and sold them on the same trade in all cases.
The first two were with e*trade:
11/2005 : net profit 1500 Dollars
02/2006 : net profit 2000 Dollars
The next two are with fidelity:
03/2007 : net profit 1000 Dollars
03/2007 : net profit 1000 Dollars

FYI I left the money in each of the accounts and not transferred to my irish bank account (BOI).

So what to do!? I'm will be talking to an accountant regarding this and declaring some rental income but would like some feedback if possible from members of this board :)

1. What tax is due on the shares? (believe to be higher rate of tax on each individual year).
2. Presume tax payment is based on exhange rate at that time?
3. Will I have to pay some interest penalty for late payment (I believe could be 0.0322% / day)? If so, is that interest on the profit?
4. If I have to pay interest, can I plead my case in any way? (such as I left the money in e*trade / fidelity and not brought to my irish a/c or that I have come forward to pay myself without being forced or even plead stupidity!).

Any feedback here would be very much appreciated.
 
Tax liablitiy will be at your marginal rate of tax.
Exchange rate to be used is the daily rate applicable.
There will be surcharges for late filing of returns, and interest on late paymant of tax.
Interest will be chargeable on the tax outstanding at 31 October each year, and on any preliminary tax due.
If interest is charged, the Revenue do not accept any excuses - but may be willing to set up an arrangement for payment over a period of time, if this will cause you hardship. Your accountant will advise on this if you ask.

www.taxingtimes.ie
 
Thanks Domo,

There're some answers I was afraid of hearing! Should I contact the revenue directly to help figure out exactly what is due - if so, who should I contact?
 
You need to complete tax returns for each year in question, and calculate your own tax liability under self-assessment.

I would suggest that you get someone to do this for you if you are unsure how to go about it. You can contact me for a fee quote if you wish.
 
Hi Domo,

Thanks again, is your number on the website?

One last question, re self assessment - I'm registered online as a PAYE with ROS so can I file this tax liability on the online Form 11? And if that was the case, I would have until mid November?

I had planned to do all the returns online including my rental properties but am away on holidays next week, and to cancel that wouldn't be worth what would come in return from my wife :)
 
Yes, you can do it online for 2008.
You have the extended deadline if you PAY and FILE online, so make sure you pay online also for 2008.

Re the previous years - you can do these online also, but will be charged late filing surcharge automatically.

Make sure you claim all relevant deductions for rental income.

My number and email is on my website if you need to contact me.
 
Jsut to add to this.

So, you calcualte you profit using the exchange rate applicable on the day and use this to calcualte your Euro profit and from this the CGT due.

However, if the OP has left the sale in dollars and has subsequently made a (euro) loss on this, can he not write this loss off against the profit he made on the stock options?

As a result, is the net effect, not to use the exchange rate today (if sale proceeds are still in dollars or if already converted to Euros, the exchange rate used on that day) as opposed to the exchange rate applicable on the day of the sale?
 
You can't claim a loss for foreign exchange (or a profit) for personal transactions.
These are ignored for tax purposes.
 
Are you sure? I read somewhere on another post that someone was liable for CGT when he made a speculative fx trade from EUR to USD and then back.

Could you not claim holding the dollars was speculative and so right off the loss against your profit?
 
I thought you did have to pay on an FX gain. Foreign currency is specifically stated to be an "asset" for CGT purposes. However, OP would have to crystallise the loss to claim it against a gain so he'd have to move his dollars now. If he didn't, he'd pay tax on the exchange rate for the options at the date of sale, then use that exchange rate as his CGT base to calculate his loss as and when he did transfer over the dollars.

Having said all that, the share option tax is income tax and can't be offset against a capital loss, even if it was crystallised.
 
Hi all,

Thanks for all the feedback - am discussing with my accountant but am very interested in what I am reading.

1. I have left the sale in dollars and not moved from both e*trade and fidelity - also I have not bought other stock subsequent with that money.
2. So I could write off the loss in exchange rate now, versus what it would have been at time of sale, against the profit and therefore reduce my tax liability?

Is this right?
 
Jugovic said:
Hi all,


2. So I could write off the loss in exchange rate now, versus what it would have been at time of sale, against the profit and therefore reduce my tax liability?

Is this right?
Click to expand...

No - because the taxable gain for the options is income tax and the exchange rate loss is a capital loss. Your accountant will confirm.
 
Jugovic said:
Hi all,

I have some some questions with regard to stock options that I sold a few years ago but unfortunately have not paid any tax on them (believe that to be Relevant tax on a Share option?). Stupid of me to wait until now but want to sort it out now even though the revenue has not chased me yet - although the amounts involved are not that big.

Details are below. I exercised the stock options and sold them on the same trade in all cases.
The first two were with e*trade:
11/2005 : net profit 1500 Dollars
02/2006 : net profit 2000 Dollars
The next two are with fidelity:
03/2007 : net profit 1000 Dollars
03/2007 : net profit 1000 Dollars

FYI I left the money in each of the accounts and not transferred to my irish bank account (BOI).

So what to do!? I'm will be talking to an accountant regarding this and declaring some rental income but would like some feedback if possible from members of this board :)

1. What tax is due on the shares? (believe to be higher rate of tax on each individual year).
2. Presume tax payment is based on exhange rate at that time?
3. Will I have to pay some interest penalty for late payment (I believe could be 0.0322% / day)? If so, is that interest on the profit?
4. If I have to pay interest, can I plead my case in any way? (such as I left the money in e*trade / fidelity and not brought to my irish a/c or that I have come forward to pay myself without being forced or even plead stupidity!).

Any feedback here would be very much appreciated.
Click to expand...
Just wondering could you play dumb ,and ask for a tax clearance cert just say you are thinking of becoming a taxi man and you need the cert.This way you will find out, I have heard of people who did owe tax then asked for tax clearance cert and where surprised to find they had no tax liability . Then would have the cert for proof if they ever came back to you.
 
Hi Dodo,

Interesting point, I may do that. So getting a tax clearance cert means that the revenus states that you owe the government no tax, even if something pops up afterwards? Sounds like a great get-out-of jail card, there must be a catch? Say you do some late returns for a rental property and owe the goverment fines / taxes, but have this cert stating for that year you owe the goverment nothing!!

just reading through the company documentation re the stock options, it states that its 'my responsibility to make the required payment to the revenue on time and people who have availed of share options are considered to be self-accessment tax-payers and are required to complete an annual tax return'

I have been talking to my accountant and he asked me did I receive any correspondence from the Revenue regarding the share options - because he is aware of a case where the revenue identified someone in a similar position to me who had exercised share options.The revenue wrote to the person with the details and simply asked him to pay the tax due by a certain date without charging interest or imposing penalties - which is a good sign for me, as I'm going forward by my own free will.

He also said it was better to file Form 12 (Employees & Pensioners) rather than Form 11 (self-Employed) as the self-employed returns are subject to very penal surcharges when filed late.

Any further comments on the above / advice most helpful!
 
Jugovic said:
Hi Dodo,

Interesting point, I may do that. So getting a tax clearance cert means that the revenus states that you owe the government no tax, even if something pops up afterwards? Sounds like a great get-out-of jail card, there must be a catch? Say you do some late returns for a rental property and owe the goverment fines / taxes, but have this cert stating for that year you owe the goverment nothing!!

just reading through the company documentation re the stock options, it states that its 'my responsibility to make the required payment to the revenue on time and people who have availed of share options are considered to be self-accessment tax-payers and are required to complete an annual tax return'

I have been talking to my accountant and he asked me did I receive any correspondence from the Revenue regarding the share options - because he is aware of a case where the revenue identified someone in a similar position to me who had exercised share options.The revenue wrote to the person with the details and simply asked him to pay the tax due by a certain date without charging interest or imposing penalties - which is a good sign for me, as I'm going forward by my own free will.

He also said it was better to file Form 12 (Employees & Pensioners) rather than Form 11 (self-Employed) as the self-employed returns are subject to very penal surcharges when filed late.

Any further comments on the above / advice most helpful!
Click to expand...
The thing is they will state if there are any issues, say for eg you owe tax on rental house in 2008 this will come up, they will say we can't give cert due to this reason and they will tell you to sort out your tax affairs,then you ask them what the issue is,
 
Revenue are aware that many people didn't pay/know about share option-related tax Back in The Day. They have let many people I know off penalties and interest, although in some cases this would have been where people exercise and hold the shares & the shares then fall in value, leaving them with a tax bill but no gain. OP, your best bet is to write to the revenue with an estimate and an explanation (and a cheque). Revenue are informed by companies (or, should I say, companies have a legal obligation to inform revenue) any time someone is issued or exercises a share option. I doubt if a tax clearance cert is a whitewash and the fact remains that you owe them tax, so you should pay it.
 
WaterSprite said:
Revenue are aware that many people didn't pay/know about share option-related tax Back in The Day. They have let many people I know off penalties and interest, although in some cases this would have been where people exercise and hold the shares & the shares then fall in value, leaving them with a tax bill but no gain. OP, your best bet is to write to the revenue with an estimate and an explanation (and a cheque). Revenue are informed by companies (or, should I say, companies have a legal obligation to inform revenue) any time someone is issued or exercises a share option. I doubt if a tax clearance cert is a whitewash and the fact remains that you owe them tax, so you should pay it.
Click to expand...
Interesting point you make about people who exercised their option's but held the shares hoping that shares would go up in value.But with the markets since 9/11 some shares went down and never recovered.
I have done the above with options received by an American company and still have the shares.I deferred the tax owed on option's .
You don't happen to have a number of a accountant that you could PM to me by the any chance,someone who has dealt with these type of cases.Also the other problem is with the weakness of the dollar.
 
Pickle, sorry, I don't have a number for an accountant - some have been recommended on this forum though so do a search and you may come up with some names. I, too, fell into this trap, but before the facility to defer tax on options was introduced. I paid the tax and took the hit. It's only this year (10 years later) that I've recouped the losses. That's the risk I took back when we thought that share prices could only go up... A lesson learned for me for sure. If I was exercising share options again, I would either sell them all on the spot or at least sell enough of them to cover the income tax bill.

With regard to the weakness in the dollar, as I posted above, if you exercise the share options, the price at the time of exercise becomes your base for CGT (you use the exchange rate at the time). So, in addition to the loss suffered as a result of the fall in value, once you actually sell the shares, you can also claim a loss for the drop in the dollar based on the exchange rate when you sell. As you probably know, that loss is only worth something to you when you realise a gain.
 
WaterSprite said:
Pickle, sorry, I don't have a number for an accountant - some have been recommended on this forum though so do a search and you may come up with some names. I, too, fell into this trap, but before the facility to defer tax on options was introduced. I paid the tax and took the hit. It's only this year (10 years later) that I've recouped the losses. That's the risk I took back when we thought that share prices could only go up... A lesson learned for me for sure. If I was exercising share options again, I would either sell them all on the spot or at least sell enough of them to cover the income tax bill.

With regard to the weakness in the dollar, as I posted above, if you exercise the share options, the price at the time of exercise becomes your base for CGT (you use the exchange rate at the time). So, in addition to the loss suffered as a result of the fall in value, once you actually sell the shares, you can also claim a loss for the drop in the dollar based on the exchange rate when you sell. As you probably know, that loss is only worth something to you when you realise a gain.
Click to expand...

Waterspirit, here is my case,
Turned options to shares, total value of share where eg 20K for easy calculation , tax due 8,800 but took deferred option,Dollar v Euro then was roughly 1 $ = 1 E,
Now total value of shares is 7K Euro , Now Dollar V Euro is 1$ = .67 E, the 7 K is got from the today's rate. 10.5K$ = 7K Euro
So I have loss my own money as was the gamble but also some of the tax,(it was a gamble that backfired)if went the other way then great but them are the breaks.
So it is correct that I need to come up the shortfall of 1,800 owed to the tax man is there anything I can do to at all.
The original revenue tax cert sent out in 2003 stated tax owed 7 K but deferred,it does not state how long they where deferred for on the tax cert. Even if the exchange rate was back to what it originally was then I would have 10.5K thus making a profit of 3.5K after paying taxman 7K. It was a double whammy shares went down and then the exchange rate went from rate of 1$ = 1E to today's rate of 1$ = .67 cent

all advice appreciated
 
I am not an accountant and think you should consult one about your case. I believe that you can only defer tax on share options for 7 years. From what I know, the tax on exercise is fixed (at the date of exercise and at the exchange rate on the day). If the exchange rate is worse now, then when you sell the shares, you can claim a capital loss for the difference in the total value of the shares at the date of exercise (incl then-exchange rate) and the total value when you sell (incl current exchange rate).

From your numbers, if you sold all the shares today at 7kEuro, then you will have paid 8.8kEuro in income tax (or 7k, it's not clear from your post) and you will have capital loss to carry forward of 13k Euro (20-7). That doesn't take into account the actual exercise price, which you would have deducted prior to calculating income tax.

The payment of the income tax essentially means that your CGT base becomes the market value at the date of exercise, notwithstanding you didn't actually pay that much (you paid the exercise price + income tax).

I have to stress that I am not an accountant and this is amateur advice only. You should consult a professional.
 
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