Thanks for nothing, IRS.

This month the tax man made an offer to companies with option backdating problems to allow them to pay the tax bills of their rank-and-file employees who may have unwittingly received and exercised backdated options.

Sounds good, considering that the prospect of a sizable and unanticipated tax bill may be demoralizing for innocent employees, and resolving the issue may make good business sense.

“This enables companies to make things right with employees who may face a big tax bill this year,” says John Gamble, an Atlanta-based partner with labor and employment law firm Fisher & Phillips.

But for companies in the midst of internal reviews of their option granting practices, the payment of penalties may be tantamount to showing their cards.

“Companies that do this are alerting the IRS and the rest of the world that they have option-related problems,” Gamble says.

“The rest of the world” being, of course, the Securities and Exchange Commission and criminal prosecutors. To participate in the program, details about all the options and the employees who received them must be submitted to the IRS. That could make a potentially useful witness list to securities regulators down the road.

Employees who exercised backdated options last year are liable for a 20 percent penalty tax and interest charges this April per Section 409A of the Internal Revenue Code, which relates to deferred compensation.

Normally, employees pay tax only on the difference between the exercise price of the option and the market price of the stock when the option is exercised. However, the exercise of discounted options (those granted with an exercise price below the stock’s market price), constitutes payment of nonqualified deferred compensation and results in the 20 percent penalty to employees. The IRS offer doesn’t apply to senior executives or other insiders who received backdated options.

“We are allowing employers to satisfy the tax obligations of employees who did not knowingly participate in these schemes,” IRS Commissioner Mark Everson said in a news release.

Tax lawyers are underwhelmed by the proposal. Employers could wait until their options investigations are complete, and if it’s determined that some options were backdated, they can make employees whole at a later date.

The only advantage to companies of settling the tax bills now is that the sooner they pay, the less interest accrues on the underpayment of taxes. For companies like Broadcom that issued large numbers of options under broad-based employee plans, that may be a significant issue. But for most companies, it’s small potatoes compared with the potential fallout down the road with securities regulators.

“The IRS didn’t create a big incentive for companies to do this,” says Latham & Watkins tax lawyer Jim Barrall. “I don’t suspect there will be a big rush to take advantage of the program.”

If there is a rush, it has to be soon. Companies have until February 28 to decide whether they’ll participate in the program, and employees must be notified within 15 days. The payments must be included as taxable compensation to the employees in the 2007 tax year.

“The IRS normally takes so long to do things, it’s surprising that they expect companies to move this fast on something as complicated as backdating,” Gamble says.

The reason may be that the IRS is playing with a strong hand, suggests Timothy McCormally, executive director of the Tax Executives Institute.

“I don’t think the IRS considers this a settlement offer as much as a statement of fact,” McCormally says.

And, backdated stock options are going to result in significant extra tax liabilities for companies and their employees. While the IRS may prefer to have the money now, it apparently isn’t going to offer up much to get it.

Filed by Andrew Osterland of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.