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Date:   2 Jan 2008
From:   Lauren

My company is being sold in an all-cash buyout. All of my incentive stock options will vest. I will be forced to sell the stock. Since I will be forced to sell, are the profits from the sale taxed at the capital gains rate or as straight income?

Answer

Date:   1 Feb 2008

Hello Lauren,

Assuming the transaction is an exercise and sale (or just a settlement of the value of the options), all of the income will be taxable as ordinary income. Employee stock options aren't capital assets and you will not meet the holding period requirements for the stock to qualify for long-term capital gains or to avoid having a disqualifying disposition.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options - Executive Tax and Financial Planning Strategies.

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.