IDAPA 35.01.01.271 — IDAHO COMPENSATION: STOCK OPTIONS (RULE 271)

Section 63-3026A(3), Idaho Code
01.
In General. The granting of stock options is considered to be compensation for services. Although
considered as compensation, in some circumstances the taxpayer may report the compensation on his federal income
tax return as capital gain income. The character of the income from the granting of stock options and the timing of
reporting it for federal income tax purposes apply in computing Idaho taxable income.
(4-6-23)
02.
Definitions. For purposes of this rule:
(4-6-23)
a.
Workdays, Idaho workdays, and total workdays are defined in Rule 270 of these rules.
(4-6-23)
b.
Compensable period means the period that begins at the date the stock option is granted and ends at
the earlier of the date the stock option becomes vested or the date the employee's services terminate.
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c.
Statutory stock options are options governed by specific Internal Revenue Code sections that
impose restrictions on both the employer and the employee. Statutory stock options include incentive stock options as
provided in Section 422, Internal Revenue Code, and options issued pursuant to employee stock purchase plans as
provided in Section 423, Internal Revenue Code.
(4-6-23)
d.
Nonstatutory stock options are options that do not meet the Internal Revenue Code requirements to
IDAHO ADMINISTRATIVE CODE
IDAPA 35.01.01
Idaho State Tax Commission
Income Tax Administrative Rules
Section 272
Page 42
qualify as statutory stock options or are granted pursuant to a plan or offering that does not qualify.
(4-6-23)
03.
Compensation for Future Services. The granting of stock options will be presumed to be intended
as compensation for future services. The party alleging otherwise bears the burden of proving that the stock options
were intended for services rendered before the date of grant.
(4-6-23)
04.
Statutory Stock Options.
(4-6-23)
a.
Compensation. Compensation is realized at the date the option is exercised, but not taxable until the
income or gain is recognized for federal income tax purposes. If a taxpayer reports a capital gain for federal income
tax purposes from statutory stock options, the amount of Idaho source compensation will also be reported as capital
gain income for Idaho income tax purposes. Idaho source compensation is determined as follows:
(4-6-23)
i.
Compensation is equal to the portion of the gain that equals the difference between the option price
and the fair market value of the stock at the date the option was exercised. Compensation is limited to the gain
actually recognized if the stock is sold for less than its fair market value at the time the option was exercised. No
compensation will be reported if the stock is sold at a loss.
(4-6-23)
ii.
Compensation for services performed in Idaho equals the compensation determined in Subsection
271.04.a.i., multiplied by the ratio of Idaho workdays to total workdays during the compensable period.
(4-6-23)
b.
Investment Income. Appreciation in the value of the stock after the date the option was exercised is
to be reported as investment income and sourced to the taxpayer's domicile at the date the stock was sold.
(4-6-23)
05.
Nonstatutory Stock Options.
(4-6-23)
a.
Compensation. Compensation is recognized at the date the stock option is exercised. The amount of
Idaho source compensation related to the stock option is determined as follows:
(4-6-23)
i.
Compensation for federal income tax purposes is equal to the difference between the option price
and the fair market value of the stock at the date the option was exercised.
(4-6-23)
ii.
Compensation for services performed in Idaho equals the compensation determined in Subsection
271.05.a.i., multiplied by the ratio of Idaho workdays to total workdays during the compensable period.
(4-6-23)
b.
Investment Income. Appreciation or depreciation in the value of the stock after the date the option
was exercised is to be reported as investment income and sourced to the taxpayer's domicile at the date the stock was
sold.
(4-6-23)