🎯Employee Stock Options: 2 MCQs

Responses

1. 

   Deleted User 28 May 2026

   Nonqualified stock options were granted to employees on April 30, 20X3, with the options having a readily ascertainable value. As a result, employees recognized ordinary income based on this value for the taxable year 20X3. If the nonqualified stock options granted to employees are exercised, which of the following statements is true regarding the holding period for the shares acquired?

   Why Holding period is Not Start From date Of Granting Option .

   1. 

      Maroun, CPA 28 May 2026

      Hello Devang,

      The reason the holding period does not start on the grant date is that, at grant, the employee only has an option/right to buy the stock, not the stock itself. The actual shares are acquired only when the option is exercised, and the tax rules say the holding period for stock acquired by exercising a right begins on the exercise date. According to IRC §1223(5), the holding period for stock issued upon the exercise of rights begins with and includes the day the rights are exercised.

      Thus, even though this nonqualified option had a readily ascertainable value and ordinary income was recognized at the grant date, that affects when compensation income is recognized, not when the holding period for the stock begins. The holding period question is about the shares acquired, and those shares do not exist in the employee’s hands until exercise.

      Hope this helps!