Can an option labeled NQSO be treated as an ISO?

September 19, 2011

Subject:   Question on NQSO
Date:   Thu, 3 Sep 2010
From:   Dan

Can an option labeled as an NQSO in an option agreement be treated as an ISO for tax reporting if it meets all of the requirements for an ISO? Obviously we would need to convince the company not to withhold income taxes when the option is exercised, but assuming all of the other requirements are met and a disqualifying disposition does not occur, is there any reason an option issued as an NQSO but meets all of the tax requirements of an ISO cannot be treated as an ISO?



Date:   4 Sep 2009

Hello Dan,

According to Treasury Regulations Section 1.422-2(a)(4), “If the terms of an option, when granted, provide that it will not be treated as an incentive stock option, such option is not treated as an incentive stock option.”

Please send your questions to I will answer selected questions in this newsletter.

Good luck!

Mike Gray

For more information about non-qualified stock options, request our free report “Executive Tax and Financial Planning For Non-Qualified Stock Options”.

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