On Stock Options and Divorce

BY BRUCE MORRISON

I read the article “ Employment Benefits and Divorce ” ( JofA, Feb.02, page 40) and question the inclusion of field service advice (FSA) 20005006 as an authority in taxing options transferred in a divorce—an FSA is nonbinding and cannot be cited as precedent.

The FSA references letter ruling 8813023 in support of its position. This ruling was rejected by the tax court in Balding v. Commissioner, 98 TC 368, which ruled in favor of the same taxpayers involved in the private letter ruling.

As further support, the field service advice cites Gibbs v. Commissioner, TC Memo 1997-196. In that case, the taxpayer received a property settlement paid out over the course of 10 years, and the trial court required interest to be paid on the installments. The taxpayer tried to exclude the interest income as part of the property settlement. The tax court held that the interest was not part of “any gain presumably included in the principal portion” of the marital property.

The FSA gives no consideration to other positions taken by the IRS. Letter ruling 943310, for example, has long been the guideline in California and comes to a completely different conclusion.

This article is not the first I have seen to cite FSA 20005006. However, a critical review of its citations indicates that giving this field service advice any recognition, let alone a full paragraph, really overstates its importance.

Bruce Morrison, CPA
San Jose, California

SPONSORED REPORT

Building client loyalty with payroll services

In this report, CPA experts detail their tactics for performing successful payroll services, how to mitigate risk in the process, and the impact payroll can have as a value-added service.

PODCAST

Using drones to enhance audits

Hermann Sidhu, CPA, global assurance digital leader at EY, walks us through EY’s exciting new project to use drones to help audit large warehouses and outdoor inventories.