Tax implications on a Stock Option Exercise

[Guest ArrowMatt]

We're trying to decide the accounting method that we're going to us regarding cashless stock option exercises. Currently, when an optionee exercises an option, we use the fair market value of the stock as of the end of the business day. This can cause some problems because if the stock is volitile, then the close price can be significantly greater or lesser than the actual sale price.

What seems to the the predominate way that companies are showing the gain on the W2s? The IRS doesn't seem to have proper guidelines. The only item I could find of relevance was Rev Proc 2002-50.

[Kirk Maldonado]

Look at PLR 199942012 (July 20, 1999) for a creative solution to this problem.