Print This Page

Date:   Fri, 28 May 2004
From:   Kevin

I was laid off from my company 2.5 months ago after 3 years of service. I wish to exercise some or all of my vested ISOs before the 90-day period has expired since my termination. The company is privately held and has no near future plans for going public.

1. Can I ever sell these shares to another individual privately if the company doesn't go public?
   
   
2. The company has elected to be an S corporation. Does this have any bearing on the company registering with the SEC?
   
   
3. Would I be taxable on corporate income as an S shareholder?
   
   
4. If I later find the tax burden is too severe, can I disavow the shares at a later time?

Answer

Date:   Fri, 28 May 2004

Hello Kevin,

1. You should consult with an attorney familiar with stock options about this question. Call me if you need a referral.
   
   
2. Companies that make S elections can later go public. They will lose their S status at that time.
   
   
3. S shareholders are taxable on their share of the corporation's income.
   
   
4. Disavowing the shares at a later time will be difficult.

If you are really concerned about the tax burden for these shares, maybe you should pass on this opportunity (don't exercise the options).

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.