This excerpt taken from the TSYS DEF 14A filed Apr 30, 2007.
Federal Income Tax Consequences
The following is a general summary of the current federal income tax treatment of stock options, which may be granted under the Plan, based upon the current provisions of the Internal Revenue Code and regulations promulgated thereunder.
Incentive Stock Options: Incentive stock options under the Plan are intended to meet the requirements of Section 422 of the Code. No tax consequences result from the grant of the option. If an option holder acquires stock upon exercise, the option holder will not recognize income for ordinary income tax purposes (although the difference between the option exercise price and the fair market value of the stock subject to the option may result in alternative minimum tax liability to the option holder) and we will not be allowed a deduction as a result
of such exercise, provided that the following conditions are met: (a) at all times during the period beginning with the date of the granting of the option and ending on the day three months before the date of such exercise, the option holder is our employee or an employee of one of our subsidiaries; and (b) the option holder makes no disposition of the stock within two years from the date of the option grant nor within one year after the transfer of the stock to the option holder. The three-month period extends to one year in the event of disability and is waived in the event of death of the employee. If the option holder sells the stock after complying with these conditions, any gain realized over the price paid for the stock ordinarily will be treated as capital gain, and any loss will be treated as capital loss, in the year of the sale.
If the option holder fails to comply with the employment requirement, the tax consequences will be substantially the same as for a nonqualified option, discussed below. If the option holder fails to comply with the holding period requirements, the option holder will recognize ordinary income in an amount equal to the lesser of (i) the excess of the fair market value of the stock on the date of the exercise of the option over the exercise price or (ii) the excess of the amount realized upon such disposition over the adjusted tax basis of the stock. Any additional gain ordinarily will be recognized by the option holder as capital gain, either long-term or short-term, depending on the holding period of the shares. If the option holder is treated as having received ordinary income because of his or her failure to comply with either condition above, we will be allowed an equivalent deduction in the same year.
Nonqualified Stock Options: No tax consequences result from the grant of the option. An option holder who exercises a nonqualified stock option with cash generally will realize compensation taxable as ordinary income in an amount equal to the difference between the exercise price and the fair market value of the shares on the date of exercise, and we will be entitled to a deduction from income in the same amount in the fiscal year in which the exercise occurred. We will withhold taxes from any ordinary income recognized by the option holder due to exercise. The option holders basis in these shares will be the fair market value on the date income is realized, and when the holder disposes of the shares he or she will recognize capital gain or loss, either long-term or short-term, depending on the holding period of the shares.
Disallowance of Deductions: The Code disallows deductions by publicly held corporations with respect to compensation in excess of $1,000,000 paid to the companys Chief Executive Officer and its four other most highly compensated officers. However, compensation payable solely on account of attainment of one or more performance goals is not subject to this deduction limitation if certain statutory requirements are satisfied. Under this exception, the deduction limitation does not apply with respect to compensation otherwise deductible on account of stock options and stock appreciation rights granted at fair market value under a Plan that limits the number of shares that may be issued to any individual and which is approved by the Companys stockholders.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE FIFTH AMENDED AND RESTATED 1997 STOCK INCENTIVE PLAN.
This excerpt taken from the TSYS DEF 14A filed May 1, 2006.
Federal Income Tax Consequences
The following is a general summary of the current federal income tax treatment of ESPP Options, which may be granted under the Plan, based upon the current provisions of the Internal Revenue Code and regulations promulgated thereunder, all of which are subject to change.
The Plan is intended to qualify as an employee stock purchase plan under the provisions of Sections 421 and 423 of the Internal Revenue Code. Under these provisions, a participant will not owe United States federal income taxes when the ESPP Options are granted to the participant, nor when the ESPP Options are exercised and shares are purchased for the participant. As summarized below, a participant may owe United States federal income taxes when he sells or otherwise disposes of the shares.
Federal Income Tax Consequences For Participants Upon Disposition of Shares Purchased Under the Plan
The tax consequences to a participant depend on how long the participant holds the shares before he sells or otherwise disposes of them.
If a participant holds the shares acquired under an ESPP Option for more than (a) two years measured from the first day of the Option Period during which the shares were purchased and (b) one year measured from the Exercise Date (the date the shares were purchased for the participant), then:
If the participant sells the shares after the holding periods described above and the sale price is less than the purchase price, then there is no ordinary income and the participant will have a capital loss for the difference between the sale price and the purchase price.
The same rules described above generally apply if the participant dies at any time while owning the shares.
If the shares are sold or disposed of (including by way of gift) before the expiration of the two-year holding period or before the expiration of the one-year holding period described above, then:
Even if the shares are sold for less than their fair market value measured as of the Exercise Date, the same amount of ordinary income is attributed to the participant and a capital loss is recognized equal to the difference between the purchase price and the fair market value of the shares on the Exercise Date.
A disposition does not include: (i) a transfer into joint ownership with right of survivorship if the participant remains one of the joint owners, (ii) a pledge or a transfer by bequest or inheritance, or (iii) an exchange of stock in a tax-free reorganization.
Federal Income Tax Consequences for TCS. There are no federal income tax consequences for us by reason of the grant or exercise of ESPP Options pursuant to the Plan. TCS is not entitled to a deduction for amounts taxed as ordinary income to a participant, except to the extent that ordinary
income must be reported by a participant upon disposition of shares before the expiration of the holding periods described above. Participants are required to notify TCS of any disposition of shares acquired under the Plan within two years from the date of grant of the ESPP Options under which the shares are purchased.
The above discussion does not cover all income or other tax effects involved in an employees participation in the Plan and employees should consult with their own tax advisor regarding participation in the Plan.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN.