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Date:   Sat, 23 Feb 2008
From:   John

Mr. Gray,

My company was sold last fall. I owned stock and had outstanding options at the time of the sale. It was a cash deal for all the existing stock and options. On the date of sale, all stockholders sold their shares or had their options purchased. The sale terms include a delayed payment schedule that extends to the first and second anniversary of the closing date. We received 60% at closing plus 20% plus interest on the next two anniversaries.

Can I delay claiming the sale of some of the stock and options until the first or second anniversary so that I can claim the gains as long-term instead of short term?

Thanks much for your response.

Answer

Date:   14 Mar 2008

Hello John,

If your company was not publicly traded, the sale of stock might qualify for installment sale reporting. Your holding period for the stock will not change from short term to long term. The sale should be reported on Form 6252.

There is a question whether taxation is deferred for ordinary income for buying out your options until you receive the payments. These amounts should be reported on your W-2 form from the successor company. Most of my clients’ employers are postponing showing the income until it’s paid. I wish somebody would apply for a ruling on this issue. Any volunteers?

Good luck!

Mike Gray

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IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.