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No, that's an "issue" that I don't think Congress understood when they said SH was due 12/31 of the following year. Technically if someone had no income in the following year they shouldn't get a contribution due to 415 (if deposited more than 30 days after extended due date) but SH rules say they have to get it, so the general thinking is that the SH rules control.

Just to echo Professor Gulia, much thanks to everyone who took the time to contribute and help guide me in this endeavor. I am very humbled to have spoken amongst individuals of such high regard in this profession.

For everyone who graciously contributed to this discussion: After another conversation with me today, the JD student will refocus the paper’s topic to how a plaintiff’s attorney should recognize employee-benefits secondary effects of the lost employment or lower wages, and in settlement negotiations should seek more value to compensate the harmed worker for could-have-been retirement contributions and growth that an award of back pay alone might not completely restore. We thank you for your good help.

Gilmore, portions of the reg have never made sense to me. Thankfully, most people today use the W-2 or 3401(a) safe harbor, and so, as FORMER ESQ. says above, the W-2 comp that occurs when the option is exercised will be included, because it will be on the individual's W-2 for both reporting and withholding purposes, when exercised. At least the answer will be clear if the optionee exercises while he or she is still employed by the grantor corporation. But even with the W-2 or 3401(a) safe harbors, I am not quite sure how the regs are intended to apply if the exercise of the option occurs after an individual terminates employment. The spread will definitely be on a W-2 for the year of exercise, but what about the timing rules for post-employment compensation in 1.415(c)-2(e)? Is the post-severance spread considered "regular pay after severance from employment" under (e)(3)(ii), like a bonus, since the option could have been exercised before severance in almost all circumstances. That's probably the intended answer. But some might see it as a post-severance payment under (e)(3)(iv. Once you move away from the W-2 and 3401(a) safe harbors, things get more mysterious. Nonqualified option spread is mostly, or perhaps entirely, excluded from 415 comp. First mystery: Why is the general 415(c) definition completely different from the W-2 and 3401(a) safe harbors on this point? Second mystery, why does 1.415(c)(2)(b)(5) tell you to include the value of an option in W-2 comp if it is included in income in the year of grant? Do they mean if the option was vested and the individual exercises in the year of grant? Maybe, but the text here seems pretty clear they are looking at the option itself as being the taxable item in the year of grant, not the spread at exercise, and again as FORMER ESQ states, the option is almost never the taxable item, because even if the stock is publicly traded the compensatory option will have terms different from any traded option on the stock. In fact, I have NEVER seen a compensatory option be includible in income. Moreover, 1.415(c)(2)(c)(2) seems to say you always exclude the spread on exercise of an option, regardless of timing. So my conclusion is that under the general 415 comp definition, nonqualified option spread is never 415(c) comp. And why is income from an 83(b) election included (1.415(c)-2(b)(6)), but not income under Section 83 due to vesting (1.415(c)-2(c)(2))? Probably because they are thinking of restricted stock, not options, and the 83(b) election has to be made within 30 days, so they figure it's really current wage income, just paid in property. The general definition of 415 comp that has these mysteries pre-dates the W-2 and 3401(a) safe harbors by many decades. My guess is that when it was first put into the regs, accounting systems were feeble and there was no internet, so who even knew (in 1964) that if a former employee exercised an option it was reportable on a W-2, or even reportable? And how would you track it? So some of these administrability issues made there way into the regs. Oh for the good old days!