disqualifying disposition

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Disqualifying Disposition

A sale or other transaction in stock that one acquired to an employee stock option plan within two years of enrollment in the plan or one year of purchase. The profit on a disqualifying disposition is not considered capital gains and is taxed like ordinary income, which is usually at a higher rate.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

disqualifying disposition

The sale, gift, or exchange of stock acquired through an employee stock purchase plan within two years of enrollment or one year of the purchase date. A disqualifying disposition results in ordinary income for tax purposes.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
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A recent Chief Counsel advice (CCA 201519031) provides guidance on disqualifying dispositions of incentive stock options (ISOs) in reorganizations.
Both the taxpayer and the IRS agreed that these were disqualifying dispositions. But the IRS also determined that the value of the taxpayer's exercisable MGC shares exceeded the $100,000 limit The taxpayer asserted that the $100,000 limitation is only applied to shares that were not subject to a subsequent disqualifying disposition.
In addition, there will be no income tax withholding on such disqualifying dispositions or on gains from exercising ESPP options with an exercise price between 85 percent and 100 percent of fair market value.
In this case, an optionee essentially swaps remitted shares for an equal number of acquired shares, so that the tax basis and holding period (for purposes other than disqualifying dispositions) of the remitted shares are carried over to an equal number of acquired shares.(6) The optionee then holds additional acquired shares with a basis equal to zero or cash paid (if any) at exercise, and a holding period that begins on transfer.(7)
Federal income tax withholding would not be required on disqualifying dispositions or when compensation is recognized in connection with an employee stock purchase plan discount.
The IRS will scrutinize such compensation to ensure proper income recognition on vesting and on disqualifying dispositions.
* If the stock drops substantially, e.g., more than one-third, consider disqualifying dispositions prior to the tax year-end.
421(b) for disqualifying dispositions of incentive stock options (ISOs).
71-52, but until it changed that ruling, it was extending payroll and withholding exemptions to ISOs and disqualifying dispositions of statutory option stocks.
The FSA did not address disqualifying dispositions of ESPP shares; presumably, it would argue that Sun Microsystems would also govern such dispositions.
These cases held that, when the exercise of a stock option gives rise to a compensation deduction to the employer corporation for income tax purposes (as with NSOs or disqualifying dispositions of ISOs), the same deduction should also be allowed for E&P purposes.