is this employee stock plan legal?

[dngllpj]

What is the name of your state? Illinois.

I worked for a small company. Their funding was from NIST (National Institute of Standards Technology). They have an employee stock purchase plan whereby everyone is forced to contribute 10% of after-tax salary to purchase company stock. The presumed stock value is $8/share and we were purchasing at $4/share. They later used the deducted money to pay rent, etc.

Now that the government funding is dry, everyone was laid off and the company practically had no activities for more than 7 months. I tried to contact the management regarding disposal of my shares, which appear worthless. My intention was to sell my stock back to them at nominal costs, so I can take a tax loss for this year. But they refused.

My questions are: 1. Is this stock plan even legal? It appears they are channeling NIST money for purposes other than paying staff. And there is no basis whatsoever to price the stock at $8/share. 2. What actions I can take to dispose of the shares and recoup my loss if at all possible?

 

[LdiJ]

What is the name of your state? Illinois.

I worked for a small company. Their funding was from NIST (National Institute of Standards Technology). They have an employee stock purchase plan whereby everyone is forced to contribute 10% of after-tax salary to purchase company stock. The presumed stock value is $8/share and we were purchasing at $4/share. They later used the deducted money to pay rent, etc.

Now that the government funding is dry, everyone was laid off and the company practically had no activities for more than 7 months. I tried to contact the management regarding disposal of my shares, which appear worthless. My intention was to sell my stock back to them at nominal costs, so I can take a tax loss for this year. But they refused.

My questions are: 1. Is this stock plan even legal? It appears they are channeling NIST money for purposes other than paying staff. And there is no basis whatsoever to price the stock at $8/share. 2. What actions I can take to dispose of the shares and recoup my loss if at all possible?

Well....I am pretty sure that a forced stock purchase plan wasn't legal....unless you signed an employment contract that required you to invest in the company. However the time to protest that really should have been when the were forcing you to purchase the stock.

At this point you are probably sol.

 

[abezon]

Check your W-2s from last year. Did the company report the gross pay (before mandatory stock purchase) in box 1 as wages? You'll need to compare your final paystub & the W-2. If the company reported the gross pay, you have a basis in the stock of $4/share. If the stock has become worthless, meaning you can't sell it to anyone, you can take a loss on Schedule D. Your maximum deduction is $3,000. Any losses in excess of this amount are carried forward until you use them up.

If the company only reported the net after stock purchase, you have no after-tax income invested in the shares & your tax basis is $0. You cannot take a loss if your basis is $0.

 

[dngllpj]

Thanks for the answers! I checked my w2 for 2004 and they did report
the gross pay before mandatory stock purchase in box 1 as wages.

The problem is, although the company is practically dead now, the management just refused to admit it. They kept saying the company is alive
and not worthless. With no market for the stock, how could I prove it's
worthless and take the loss?

Check your W-2s from last year. Did the company report the gross pay (before mandatory stock purchase) in box 1 as wages? You'll need to compare your final paystub & the W-2. If the company reported the gross pay, you have a basis in the stock of $4/share. If the stock has become worthless, meaning you can't sell it to anyone, you can take a loss on Schedule D. Your maximum deduction is $3,000. Any losses in excess of this amount are carried forward until you use them up.

If the company only reported the net after stock purchase, you have no after-tax income invested in the shares & your tax basis is $0. You cannot take a loss if your basis is $0.

 

[LdiJ]

Thanks for the answers! I checked my w2 for 2004 and they did report
the gross pay before mandatory stock purchase in box 1 as wages.

The problem is, although the company is practically dead now, the management just refused to admit it. They kept saying the company is alive
and not worthless. With no market for the stock, how could I prove it's
worthless and take the loss?

If there is no market for the stock, its worthless.

 

[abezon]

Write the company asking them to buy back the stock. When they write back saying they will not do so, keep the letter. It's your proof that the stock is worthless.

If you claim the loss this year & by some twist of fate the stock ever becomes valuable again, your basis will be $0 and all proceeds from sale will be taxable gain.