ExpertHard1 markMultiple Choice
CPA · Question 59 · Area IV: Individual Taxation
A taxpayer receives a non-qualified stock option (NQSO) with a readily ascertainable fair market value at the grant date. When is the income recognized?
A taxpayer receives a non-qualified stock option (NQSO) with a readily ascertainable fair market value at the grant date. When is the income recognized?
Answer options:
A.
At the grant date.
B.
At the exercise date.
C.
When the stock is sold.
D.
It is never taxable.
How to approach this question
NQSO Rule: If Value is Known (Ascertainable) -> Tax Now (Grant). If Value Unknown -> Tax Later (Exercise).
Full Answer
A.At the grant date.✓ Correct
A
For Non-Qualified Stock Options, if the option has a readily ascertainable FMV at the grant date (e.g., traded on an exchange), it is taxed as ordinary income at the grant date. If not, it is taxed at the exercise date.
Common mistakes
Confusing NQSO with ISO (Incentive Stock Options) or assuming no FMV at grant.
Practice the full CPA REG Practice Exam 3
72 questions · hints · full answers · grading
More questions from this exam
Q01A CPA is preparing an original tax return for a client who is claiming a refund based on a positi...HardQ02A practitioner is representing a taxpayer in an IRS examination. The taxpayer has a 25% ownership...HardQ03A tax return preparer willfully attempts to understate the tax liability on a client's return by ...HardQ04Which of the following scenarios would most likely result in the assessment of a penalty for fail...HardQ05Regarding the disciplinary authority of State Boards of Accountancy, which of the following state...Hard