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Friday, July 03, 2009


In a recent Chief Counsel Advice (CCA), the IRS determined that it may enforce a levy by seizing and selling a taxpayer's executive stock options. That the options had restrictions on transferability was found not to impede seizure and sale.

In the CCA, the taxpayer owned vested nonqualified stock options (NQSOs) and qualified stock options (ISOs) in a corporation. Under the option terms, the taxpayer could only transfer the options only to certain named persons or under certain circumstances (e.g., death).

In regard to the NQSOs, the IRS noted that the transfer restrictions were contractual, not statutory. The IRS determined that the Code Section 6331 levy provisions superseded private contractual restrictions.

In regard to the ISOs, the restrictions on transfer were statutory, per Code Section 422. Nonetheless, the IRS concluded that Code Section 6334(c) trumps the ISO restrictions. That provision reads “not withstanding any other law of the United States ... no property or rights to property shall be exempt from levy other than property specifically made exempt by subsection (a).” Since there is no statutory exemption for stock options, the IRS determined it could levy on, seize, and sell the options.

This result is not unexpected. There are other areas of the law under which third party creditors cannot reach a property interest of a taxpayer, but the IRS can. Two of these are a taxpayer's interest in an ERISA-qualified retirement plan, and state law homestead protections.

While the CCA noted that there was a contractual agreement between the taxpayer and the company that opened the options up to the tax authorities, it went on to say that it was not relying on that contractual agreement in reaching its conclusion.

Chief Counsel Advice 200926001

1 comment:

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