Regilation 1 Module 6

Question 1

Requirement for Incentive Stock Options

Qualified Plan

Answer 1

• No Tax When Granted
• No Tax When Exercised
• All the Tax When Sold

Question 2

Requirement for Incentive Stock Options

Non-Qualified Plan

Answer 2

• Some Tax Immediately

- Plus Balance when sold

Question 3

Qualified Stock Option Requirements - Incentive Stock Options

Answer 3

1. The option was granted under a approved plan by the shareholders
2. The options were granted within 10 years earlier of the date when the plan was adopted or approved
3. The options were exercisable within 10 years of the grant date.
4. the employee may not own more than 10% of the combined voting power of the corporation, parent, or sub, as of the date of the grant.
5. The exercise price may not be less than the FMV of the stick at the date of the grant.
6. Once exercised, the stock must be held at least two years after the grant date and at least one year after the exercise date.
7. The employee must remain an employee of the corporation from the date the option is granted until three months before the option is exercised.

Question 4

Qualified Plan, when is income recognized or tax paid.

Answer 4

Don’t pay any tax or claim any income until you sell them

Question 5

If there is a readily ascertainable value, what the does employees recognize and when

Answer 5

the employee recognizes ordinary income in that amount in the year GRANTED - for non qualified plan.

Question 6

If there is not a readily ascertainable value means

Answer 6

The timing the original set of taxes will not be on the grant date but the exercise date.

Question 7

Exercise price =

Answer 7

FMV

Question 8

Employee Stock Purchase Plan Requirements

(8 requirements ) 4 on this FC

Answer 8

1. The Plan mush be written and approved by the shareholders
2. The ESPP cannot grant options to any employee who has more than 5% combined voting power of the corp, parent, sub
3. Generally, the plan must include all full-time employees other than highly compensated employees and those with < than 2 years employment
4. The option exercise may not be less than the lesser of 85% of the FMV of the stock when granted or exercised

Question 9

Employee Stock Purchase Plan Requirements

(8 requirements ) 4 on this FC

Answer 9

5. The option cannot be exercised more than 27 months after the grant date
6. No Employee can acquire the right to purchase more the 25,000 of stock per year.
7. Once, exercised, the stock must be held at least two years after the grant date and at least one year after the exercise date.
8. the employee must remain an employee of the corporation from the date the option granted until three months before the option is exercised.