Abstract
This article discusses controversial proposed regulations recently issued by the IRS that provide that the exercise of statutory stock options constitutes wages for Federal Insurance Contribution Act (FICA) and Federal Unemployment Tax Act (FUTA) purposes. The proposed regulations reverse a position that the IRS has taken for 30 years. The U.S. House of Representatives has passed legislation that would override the proposed rules. Similar legislation is pending in the U.S. Senate. The proposed rules have been harshly criticized by industry representatives who assert that they will create an enormous administrative burden for both employees and the IRS, that legal support for the proposed rules is questionable and that the heaviest burden of the proposed rules will fall on lower income workers. This article delineates the requirements of the regulations for those responsible for overseeing compensation and benefits in U.S. companies.
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