DORFMONT[at]aol.com (Linda Dorfmont) wrote:

- quote -

I think I can save you a little work. I am pretty sure that
they are not ISOs, if you are really talking Microsoft.

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DORFMONT[at]aol.com (Linda Dorfmont) <DORFMONT[at]aol.com> wrote:

- quote -

If it literally happened as you described, this is pretty
unusual. Was MS able to purchase this entire small company
paying only with options (as opposed to stock?) Or were
only some stockholders (say, employees further down the
chain) stuck with this arrangement? In any case I don't
think this is a tax-free exchange -- I bet it counts as a
sale -- but that is indeed a question for Kaye Thomas.

- quote -

I would guess the FMV of the options when he received them
(or, as he vests them if that is later) was the sales price
of the original stock, and this same FMV plus the exercise
price is the basis of the Microsoft stock.

Steve

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This is definitely a Kaye Thomas question but here goes.

Taxpayer works for a small software company and has stock in
the employer's firm. (Insert theme from Jaws here) Small
company is gobbled up by MICROSOFT and taxpayer gets, in
return for his stock, options to buy Microsoft stock.

Assuming that we can determine the basis in his old stock,
what are the tax consequences of the swap if the MS options
are non-qualified? What if they are ISOs?

Now taxpayer buys the MS stock at the option price. What is
his basis with the basis of the original stock considered?
He may have already done this and sold the shares to buy a
house. All this without telling his stockbroker and the
broker finally asked me about it tonight. I told the broker
to have his client be prepared for a hefty tax bill for this
year. I'm just trying to figure out how hefty. I realize
that not all the facts are available, like how and at what
cost he got the original stock but we can treat it as either
qual or non-qual with whatever basis I can figure out based
on what kind of stock acquisition happened in the old
company.

Linda Dorfmont E.A., CFP, CSA

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >