ExpertHard1 markMultiple Choice
CPA · Question 65 · Area IV: Individual Taxation
Which of the following is a requirement for a valid 'Incentive Stock Option' (ISO)?
Which of the following is a requirement for a valid 'Incentive Stock Option' (ISO)?
Answer options:
A.
The option price must be less than the FMV of the stock at the grant date.
B.
The option can be granted to employees and independent contractors.
C.
The stock must be held for at least 2 years from the grant date and 1 year from the exercise date to qualify for capital gain treatment.
D.
The option must be exercised within 20 years of the grant date.
How to approach this question
ISO Rules: Employees only. Strike Price >= FMV. Hold 2 years from Grant AND 1 year from Exercise. Max 10 year term.
Full Answer
C.The stock must be held for at least 2 years from the grant date and 1 year from the exercise date to qualify for capital gain treatment.✓ Correct
C
To qualify for ISO treatment (LTCG on sale, no tax at exercise), the employee must hold the stock for at least 2 years from the grant date AND 1 year from the exercise date.
Common mistakes
Thinking contractors can get ISOs (only NQSOs).
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