Legal Question in Tax Law in Illinois

is this employee stock plan legal?

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?


Asked on 12/20/05, 11:07 am

1 Answer from Attorneys
Cyndi Perez Trostin

Re: is this employee stock plan legal?

Stock becomes worthless in the year it is either declared worthless by the company, the market, or by the bankruptcy court.

Stock of a privately held company is hard to value, but if there are financial statements available, you may be able to make a case for the valuation of the stock when it was purchased, and as it is today.

Sometimes the IRS will take a reasonable explanation in support of a tax position.

You should consult with a tax preparer who will be able to advise you based on the documents you have been able to obtain.

Secondly, it sounds like you and the other employees might want to consult an attorney to see what your rights are as to the employer and the benefit plan. This is a specialized area so you should seek the advice of an attorney concentrating in retirement/pension law.

Good luck to you.

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Answered on 12/21/05, 12:30 am


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