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From what I've read, whether that discount is taxed depends on whether the plan is "qualified." If it is, the difference is not treated as income; instead, the discounted price is your basis, so the discount is taxed when the stock is sold.

Unfortunately, the IRS had never definitivly said one way or the other whether ESPP discounts were taxable, and have been fighting in court the right to tax the discounts. One would assume that if they succeed, the basis would become the non-discounted price of the stock, but with the IRS, who knows.

I wasn't aware of the two year holding period, but it does appear that that does exist, at least if you want to have long-term gains.

I should point out that I'm not a tax professional, and can become as confused about such things as anyone else. If someone more qualified could step in here, I'd appreciate it.
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