ExpertHard1 markMultiple Choice
CPA · Question 72 · Area IV: Individual Taxation
Which of the following is a requirement for a 'Qualified Stock Option' (Incentive Stock Option - ISO)?
Which of the following is a requirement for a 'Qualified Stock Option' (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 stock must be held for at least two years from the grant date and one year from the exercise date.
C.
The employee may own more than 10% of the voting power.
D.
The option is transferable.
How to approach this question
ISO Rules: Exercise Price >= FMV. Hold 2 years from grant, 1 year from exercise. Employee only.
Full Answer
B.The stock must be held for at least two years from the grant date and one year from the exercise date.✓ Correct
B
To qualify as an ISO, the stock must be held for at least two years after the date of grant and one year after the date of exercise. If these are met, the employee recognizes no income on exercise and LTCG on sale.
Common mistakes
Confusing ISOs with Non-Qualified Stock Options (NQSOs).
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