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Date:   Tue, 26 Oct 2004
From:   Matt

Michael-

I exercised ISOs through a stock swap and my company was bought out before the one-year holding period, resulting in a disqualified dispositon. What is the correct treatment of the shares that were swapped?

Thanks for your help!
Matt

Answer

Date:   Wed, 24 Nov 2004

Hello Matt,

The shares for which you didn't meet the holding period and must report ordinary income are considered sold first. You can use the original acquisition date and tax basis for the "swapped" shares. Depending on your facts, they may qualify for long-term capital gains.

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.