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On discounted stock-purchase programs

[By Dr. David Edward Marcinko MBA CMP™]

• http://www.CertifiedMedicalPlanner.org

To alleviate cash-flow problems of their employees, hospitals who want them to take part in a discounted stock-purchase program may lend the money to the employees to pay any taxes due and any purchase price for the stock.

Full recourse liability

However, it is important that any such loan be subject to a full recourse liability; if the loan is secured by the stock on a non recourse basis, the transaction may be treated as if it were a grant of an option, and thus there would be no transfer of property until the loan is paid.

The rationale for treatment as an option is that if the property drops in value below the amount of the debt, the employee will not pay the debt and walk away from the property, as he would an option. Thus, until the note is paid, no transfer has occurred. This could negate the effect of a Section 83(b) election.

Example:

The following example demonstrates how the use of employer loans, in connection with a Section 83(b) election, can be used to great advantage to an employee.

The employer in the example on Section 83(b) election (above) lends the employee the cash necessary to meet the income tax liability of the $10,000 grant at 30%, or $3,000. The employee gives the employer a promissory note for $3,000, bearing interest at 8%.

Thus, the employee acquires $100,000 worth of employer stock ownership after five years with no out-of-pocket cost at the date of the grant and an interest cost of approximately $1,300, payable over five years.

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Assessment

Of course, in lieu of making a loan to the employee, the employer can simply agree to give the employee, as a bonus, sufficient cash to cover the tax liability. This is obviously more costly to the employer, as it results in the employee acquiring stock at no out-of-pocket cost.

More:

• Are Employees Opting Out of 401(k) or 403(b) Plans?
• Securities and Hospital Employees
• Physicians-as-Employees [The Benefits]
• Enter the CMPs
• Independent Contractors versus Doctor Employees

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

• PRACTICES: www.BusinessofMedicalPractice.com
• HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
• CLINICS: http://www.crcpress.com/product/isbn/9781439879900
• ADVISORS: www.CertifiedMedicalPlanner.org
• FINANCE: Financial Planning for Physicians and Advisors
• INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
• Dictionary of Health Economics and Finance
• Dictionary of Health Information Technology and Security
• Dictionary of Health Insurance and Managed Care

Foreword Dyken MD MBA

Filed under: Retirement and Benefits | Tagged: discounted stock-purchase programs, Dr. David Edward Marcinko MBA CMP™, Section 83(b) election | 1 Comment »