CPA · Question 01 · Area I: Individual Compliance and Planning
In Year 1, an executive receives an Incentive Stock Option (ISO) to purchase 1,000 shares of stock at $10 per share (FMV at grant). In Year 2, when the stock FMV is $25, the executive exercises the option. In Year 3, the executive sells the stock for $35 per share. Assume the executive meets all holding period requirements for ISO treatment. What are the tax consequences in Year 2?
Answer options:
Ordinary income of $15,000 for regular tax purposes.
No regular tax income is recognized, but $15,000 is an adjustment for AMT purposes.
Capital gain of $15,000 for regular tax purposes.
No tax consequences for either regular tax or AMT.
68 questions · hints · full answers · grading
Expert