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The instructions to the CA540 Adjustments and publication 1001 state that income from CA Qualified Stock Options (CQSO) is exempt from CA taxes if three conditions are met (less than $40K in earned income from company, less than 1000 shares exercised, market value of shares less than $100K). I meet all those conditions, however, I inherited these options from my spouse, who passed away in 1998. I am not sure if I am eligible for this exemption or only direct employees are. I received a 1099-MISC form for the difference between market price and exercise price.

Also I am not sure if my company's (Applied Materials) plan is a CSQO plan and how to find out if it is. The materials they gave out with the options don't mention this point.

Would greatly appreciate any help and advice you can give me.
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