"Exotic" Option Programs in Tax-Exempts

[Guest LRichey]

I am curious how other practitioners think the Prop 457 Regs (and the Service's apparent hostility, in last fall's hearings, to the "options in mutual funds" programs in tax-exempts) impact the viability of these type programs for tax-exempts?

In other words, what is the risk, and on a 1-10 scale (10 as most aggressive), how would you rate such a transaction for a tax-exempt client right now?

[IRC401]

I thought that the big accounting firms had stopped selling the discounted options.

In any event most of the discounted options had no economic substance and didn't work anyway. [This position was argued at length (ad nauseum?) on the NQDC board.]

From my perspective the significance of the proposed regs is that the IRS appears to have announced that it is going to wimp out and let the existing "options" go (which from my perspective encourages abusive tax planning by turning it into a ponzi scheme; it pays to get in early).

Is your client prepared to fight with the IRS?