What is the holding period for ISOs?

September 18, 2006

Subject:   Holding Period for ISOs
Date:   Tue, 05 Sep 2006
From:   Jeff


I am getting different advice from different CPAs about the holding period for ISOs. As I understand it, to avoid a disqualifying disposition, I must hold the stock beyond the later of the following two dates: (1) One year after the date the ISO is exercised; or (2) Two years after the date the ISO is granted.

Two CPAs told me I must satisfy both requirements and two other CPAs told me only one requirement needs to be satisfied.

I was granted ISOs on August 3, 2001. These shares are now 100% vested. I haven’t exercised the ISOs yet. Do I still have to wait more than one year to avoid a disqualifying disposition?



Date:   Mon, 11 Sep 2006

Hello Jeff,

Yes, you also need to hold the shares more than one year after exercise to avoid a disqualifying disposition.

Tell the CPAs who told you otherwise to see Internal Revenue Code Section 422(a)(1). It’s pretty clear.

Good luck!

Mike Gray

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