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imadthegreat
Feb 3, 2014, 11:16 PM
Hi

Last year I exercised company stock options. A month later my company was sold so all my shares were sold. Assume that my exercise price was "X" and my selling price was "Y". If I was paid out my profits like in simple "Y-X" then I would have just reported that easily. However, some amount out of Y was held in an indemnification escrow fund and will be released in 01/2015. Assume that amount is Z. So what I really received is Y - Z. My question is what sale price and hence profit should I be reporting. Is it Y-Z-X as that is the amount I received or just Y-X.

Y-X should make my calculations easy but will increase my tax bill as its all going to be short term gain. And I am also earning some interest on that escrow fund on which I will have to pay taxes later. I am a little confused on what's the right/best approach is to handle this.

Thanks
Imad

AtlantaTaxExpert
Feb 3, 2014, 11:27 PM
Imad,

The part of the "Y" that is being held in escrow is in fact NOT being sold and does NOT, in my opinion, have to be reported.

When it is released in 2015, you then report that part in the 2015 tax return. That portion should also be considered a long-term gain.

imadthegreat
Feb 8, 2014, 10:31 PM
Thanks a lot. So that makes sense and I was hoping that this would be the answer. Here is how the company gave me details on "letter of transmittal".

Participating closing amount per share: 3.2
Participating escrow amount per share: 0.64
Participating expense amount per share: 0.002

Based on above, I should assume that per share price is $3.84. Is that correct?

If yes, then for simplicity assume I had 100 shares. For 100 shares total price would be close to $384. But Let's say I received $300. Based on above price assumptions, should I report total number of shares sold to be 300/3.84=78 approximately? And then I will report other 22 shares in 2015 in my long term gains.

AtlantaTaxExpert
Feb 9, 2014, 12:31 AM
Your method of splitting the shares between 2013 and 2o15 would be acceptable to the IRS.

IntlTax
Feb 11, 2014, 11:18 AM
This is an installment sale. See Form 6252 and its instructions.