INCENTIVE STOCK OPTION

[TAXMAN]

I will try to make this simple. Letter to tp from Co. Co issued stock to tp upon Exercise of option. Stock issued upon exercise of option to tp. Date option granted 6-1-2009. Date of transfer of stock upon exercise of option:10-01-2015. Shares issued 300. Fmv at time of exercise 14k. Option exercise price:7K. Type of option: Incentive Stock Option. Next letter states I have enclosed consideration in the amount of 7k in shares and cash which represents the payment of the option price in full.(TP PAID NO CASH AND NEVER GOT THE ORIGINAL 300). Next letter I have is :exchange securities 300. Cancel securities -150. Shares issued to tp 150.

I have no ISO on W-2. Looked at final pay stub to match W-2. No ISO on paystub or inconsistencies from pay stub to W-2. Also looked at paystub at time of option. No issues there.

OK Now: Do I have a ISO or not? What would be basis for 150 new shares? NOTE: TP paid zero for this and was not in W-2. I do not have a 1099B showing sale of stock. Employer says W-2 is Correct and ISO will not show up. Shares were not a gift, award, or prize OR ADDITIONAL PAY. What do I have?

BTY I have other employees with same thing from same CO with all proper paperwork.

What would you do? My Concern is Basis#1 and what to do with 7k of stock received from Co. Even though their paperwork says ISO.  Anyone that can help or suggest a solution to this thank you.

[TAXMAN]

Just an additional thought. If co just put back the first 150 shares  would that be an indication that he sold them to the co for the 7k with a zero basis and at short term to keep the other 150 shares. Just another thought.

[cred65]

Was the form he received F 3921?  You should go to F 6251 Line 14 and enter the amounts on line 1 & 2.

[TAXMAN]

TP does not have a F-3921. The pages stated above are from the co. It just seems strange they say in consideration of $(which TP never paid) and all throughout they specify incentive stock options.

[cred65]

The basis for the shares would be the exercise price adjusted for any AMT.  So you need to make the entries on F 6251 Ln 14 to determine the adjustment.

A NSO (nonqualified) is added to the W-2 so it would not be applicable in this situation.  You are dealing with an ISO.

[TAXMAN]

I think my problem is that the TP NEVER paid for any of the stock. So how either determine a basis for the 300 shares and winds up with 150 shares in his hand.

[Lion EA]

He paid for 150 shares of his stock by buying/selling the other 150 shares, didn't he?

[TAXMAN]

That is why I am having this problem TP paid zero $. No Cash from him and no extra income in w-2.

[Lion EA]

His proceeds from the other 150 shares are his cost basis in the 150 he kept, or his giving back 150 shares to the company are his cost basis in the 150 he kept.  Ask your client.  Or, tell him to ask his employer.  What Cred said.