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I've dealt with many Sec. 423 plans over the years, but I've never come across one that requires a post exercise holding period. Does the plan guarantee a future selling price that at least equals the exercise price?

The advantage of meeting the 12/24 month stock holding period following exercies is that the bargain element (the difference between the option price and fair market value of the stock on the exercise date) will be treated as capital gains rather than ordinary income. The discount will forever be ordinary income when the exercised shares are ultimately sold.

But without a guarantee on the future stock price, you would simply be taking a non-elective market risk of the price of the stock dropping below the exercise price...and the discount will still be ordinary income on the sale of the stock, regardless of the stock's price. This is quite a bit of risk for employees to be asked to take.

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