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Subject:   Company Purchase
Date:   Thu, 6 Jan 2000
From:   Scott

I have an ISO for 10,000 shares of a company that is not traded on the market. My purchase price is set +AEA-+ACQ-10 per share. I am vested but have not exercised.

The company is being purchased by a larger, publicly traded firm. The purchasing firm is traded +AEA-+ACQ-60 per share.

I have been told that the purchasing firm is to pay +ACQ-20 per share for my company stock.

My questions is: How does this effect me? and How do I figure my gains and losses?

Thanks,

Scott

Answer

Hello Scott,

You haven't exercised your options yet.

Assuming that you exercise the options for $10 per share and immediately sell them for $20 per share, you will report additional compensation (W-2) income of $10 per share under salary and wages (total of $100,000). On Schedule D, you will report the sale proceeds of $200,000 less the tax basis of $200,000 for zero gain or loss. There may be some selling expenses, resulting in a small short-term capital loss.

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.