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Subject:  Re: Determining stock options sell/exercise date Date:  1/7/2000  5:58 PM
Author:  BladeXrunners Number:  24599 of 127637

On 12/27/1999 I requested my broker do a same day sell on 600 shares of ISO stock options. My broker says the "sell" took place on 12/30/1999. My stock option adminsitrator says the "exercise" occurred on 1/4/2000.

I'm confused as you are. How is your "same day sell" structured?

I'm confused because your broker sell stocks on 12/30/99, which you don't have yet because your option was exercised until 01/04/00. I'm guessing that your broker is authorized to sell any vested shares, hold the proceed until your company "deposit" the shares exercised and receive from the broker the exercise cost--again, only guessing.

I'm presuming that this is still subject to the "constructive receipt rule" which says you recognize income in the year the income was "set aside" for you. The only exception is if this income is subject to "risk of forfeiture", then you recognize the income in the year that risk is gone.

Since the broker sell your stocks on 12/30/99, they then had "set aside" income for you in 1999. The question is whether this income is subject to risk of forfeiture, and I venture no because there's nothing to prevent the exercise of your ISO (just because your company took a couple of days long to do it doesn't you risk not being able to exercise your ISO). Thus, the income is in 1999.

(Again, I'm confused. What I see usually happen is that you exercise your stock option, then the broker sell your shares, all within the same day. Then the broker and the company settle its account a couple of days later and then the broker give you the net proceed.

Which year do I report the income -- 1999 or 2000?

I say 1999. (BTW, asking the IRS won't shed much life because they will just quote the constructive receipt rule to you without giving you an answer -- our tax dollar at work)

I'd like to report it in 1999 so I can option more this year without raising my taxable income too terribly high.

If only we can report the year we would LIKE our income to be taxable . . .

Most important though, I want to do whatever keeps out of trouble with the IRS.

My advice is to ask your plan administrator which year to recognize the income. Then run to a tax lawyer and see if he concur.

You get what you paid for in this forum ; )

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