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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121599  
Subject: Re: Advice on stock options Date: 3/20/2008 11:18 AM
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Mrs. Goofy has options on a significant number of stock options which must be exercised by April 1. We are not comfortable purchasing all of them, but have found a buyer for 2/3 of them at a price acceptable to a (well) qualified buyer, and to us. We would retain the 1/3 of the options (stock, once exercised) for ourselves, which would likely not be liquid for several years (private company.)

We would purchase the entire tranche, then "sell" 2/3 to this buyer. That would make our gain short-term, and taxed at a higher rate. Since the buyer has no interest in (nor ability in) selling the stock for at least a year, if we signed a letter of intent to sell him the stock in 2009, would that allow us to "hold" the stock and thereby achieve a lower cap gains rate, or does the fact that there is a letter of intent to sell make the sale a "today" sale instead of "next year", even though the stock is not conveyed until next year?


While I'm not sure whether your plan would work or not (it's not an area that I have any experience with), your analysis omits one very important factor. If you can use a letter of intent to retain the long-term gain character, then you have converted your buyer's potential gain (restricted purchase price vs. open-market sale price) from long-term to short-term. Your buyer might not be willing to offer as much if his tax liability increases.

Ira
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