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The discussion above establishes that the tax treatment of common stock-based executive compensation, whether in the form of direct grants, ISO, or NQOs, is dependent on the valuation of that common stock when it is granted.
This tax treatment is equivalent to that for NQOs in the U.S.
(1998) assume that executives are taxed at the highest statutory rate and investigate whether high tax rate firms use NQOs. They use five different variables to measure the corporate tax rate and find that none of them are statistically related to the form of option plan.
This is perhaps surprising because popular press articles indicate that the size of the corporate deduction provided by NQOs is huge, completely eliminating corporate taxes for many large, profitable firms in the late 1990s (e.g., NY Times, June 13, 2000).
GM did not disclose the tax benefits from ESO plans, but their stock option note allows us to estimate ESO tax benefits of $55 million assuming all ESOs exercised are NQOs. Although GM likely paid no federal taxes in 1998, the GAO estimates GM's taxes to be $36 millio n.
(3.) The tax code identifies two types of ESOs: statutory (or qualified options or incentive options, ISOs) and nonstatutory (or nonqualified options, NQOs).
Finally, while the previous discussion deals with NQOs, the maximum ESO cost for NQOs may be applicable to ISOs.
Hence, the [P.sub.s] for NQOs applies to ISOs as well.
The Revenue Reconciliation Act of 1993 (RRA) substantially increased marginal tax rates for most top executives, directly raising the immediate tax cost of exercising NQOs.
The two most popular types of option plans are incentive stock option (ISO) plans and non-qualified stock option (NQO) plans.
In fact, the potential downside of an exercise-and-hold strategy for NQOs is greater than ISOs, since the former is subject to a higher tax prepayment risk.
Under Apple Computer, the use of NQOs by a growing company presents a tremendous opportunity to leverage the tax savings generated by the research credit.