[Please refer to the sample plan document XYZ Corporation Stock Incentive Plan and related documents in your CEP binder to answer this question.] An employee conducts a same-day sale of options she holds under the XYZ Corporation Stock Incentive Plan. For income tax purposes, when is the exercise considered to occur?
A. When she delivers same-day-sale instructions to the broker.
B. When she delivers the necessary instructions to the company.
C. When the company delivers the necessary instructions to the broker.
D. On the day the sale transaction settles.
Answer:A
[Please refer to the sample plan document XYZ Corporation Stock Incentive Plan and related documents in your CEP binder to answer this question.] An employee conducts a same-day sale of options she holds under the XYZ Corporation Stock Incentive Plan. For income tax purposes, when is the exercise considered to occur?
A. When she delivers same-day-sale instructions to the broker. B. When she delivers the necessary instructions to the company. C. When the company delivers the necessary instructions to the broker. D. On the day the sale transaction settles.
Explanation: Under the XYZ Corporation Stock Option Agreement, the exercise shall be deemed to occur upon the execution of a same-day sale with the designated broker. The agreement goes on to state that "for income tax purposes, the Exercised Shares shall be considered transferred to Optionee on the date on which the Option is exercised with respect to such Exercised Shares." Answer b. is incorrect because any instructions provided to the company must also include payment of the aggregate exercise price.