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Hedging Nonqualified Stock Options Revisited  


Author:  Peter Brady.; Robert N. Gordon.


Source: Volume 21, Number 04, Summer 2004 , pp.359-366(8)




Journal of Taxation of Investments

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Abstract: 

In the Spring issue of this journal, the authors discussed the issues and opportunities related to hedging nonqualified employee stock options. Since that article was published, there have been some interesting developments that could directly impact the utilization of the hedging tools discussed previously. Specifically, Treasury published proposed regulations governing the taxation of contingent “notional principal contracts” (swaps) and separately issued a private letter ruling2 to a taxpayer who wished to identify a transaction as a hedge under Section 1221. Both of these developments could have potential implications for employees who wish to hedge nonqualified stock options.

Keywords: Section 1221; Reg. 1.1221-2; PLR 200415009

Affiliations:  1: Financial Risk Management; 2: Twenty-First Securities Corporation.

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