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
9) Federal payroll taxes (FICA, FUTA, and federal income tax withholding) are not assessed on disqualifying dispositions
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.
3% tax rate in its first quarter, slightly lower than expected primarily due to the impact of disqualifying dispositions
of incentive stock options exercised during the quarter.
As many option holders often exercise an option and sell the stock for cash the same day, disqualifying dispositions
are very common.
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.
of ISO shares acquired on or before December 31, 1987 in a year subsequent to the year of exercise will eliminate the tax preference in the year of exercise.
2 million relating to disqualifying dispositions
of incentive stock options.
The IRS will scrutinize such compensation to ensure proper income recognition on vesting and on disqualifying dispositions
more than one-third, consider disqualifying dispositions
prior to the tax year-end.
The cash flow presentation for both 2005 and 2004 have been adjusted to move the Tax Benefit of disqualifying dispositions
of stock options and exercise of non- qualified stock options to the Financing Activities section of the cash flow statement from the Operating Activities in accordance with FAS 123R guidance.