One part of the original question that hasn't been discussed yet is how does the discount get factored in? many ESPP plans give you a 5 - 15% discount off of the prevailing market price when the shares are purchased.

During the quarterly window, most ESPP's will sell you shares at the lesser of the price less the discount at the beginning of the current period (say, Jan 1) or the price on the date of purchase less the discount (say for payroll period of Mar 15). At least at my company, the ESPP period occurs in 6mo windows.

Now, my understanding of how such a plan works is if you sell or otherwise dispose of your shares during a 'disqualifying period' then the amount of the discount needs to be treated as miscellaneous income and if sold directly by your plan you'll get a 1099-misc from them. If however you hold the shares for a period of 2 years before selling them then when sold you do not have to treat the discount portion as income. The is my understanding of the plan as was described to me...doing my own due diligence though (trying to read the irs docs on this) it seemed to me that you had to treat the discount as income whether or not it was held for the 2 yr period.

Can any of our kindly experts here confirm the correct way to handle the discount? (ie, if sold after holding for 2 year period, no tax on the discount...or there is tax?)