AMT and Equity Compensation
Alternative minimum tax, nonqualified stock options, incentive stock options and other forms of equity compensation.
Fully Paid Securities Lending and Disqualifying disposition
After exercising ISOs to hold, if the stock is "hard to borrow", one possibility is to participate in a fully paid securities lending program such as offered by Fidelity.
Exercising ISOs to hold can be part of a strategy leading to a qualified disposition. However, there are transactions that can lead to a disqualifying disposition or reset the timer for the 1-year holding period required for a qualifying disposition. Among those transactions are short sales or option trades in the same security.
What, if any, relevance does lending shares have when considering a qualifying/disqualifying disposition?
Re: Fully Paid Securities Lending and Disqualifying disposition
Not sure of the answer here. I'm inclined to believe the IRS would not treat a lending transaction as a disposition unless something went wrong to prevent you from recovering the shares, but I'm not aware of any ruling on the issue. As a technical matter, it would be analyzed under section 424(c) of the Code, where a "disposition" is defined to include "a sale, exchange, gift, or a transfer of legal title," with certain exceptions. Ordinarily the lender of an asset retains legal title, but I'm not sure this is the case in a securities lending transaction?
If you are transferring legal title, then you have to fit within the exception for a "mere pledge or hypothecation," but I believe those terms refer to a situation where you borrow money and use the shares as security for that loan, rather than a situation where you lend the shares. The IRS might nevertheless agree that this is not the kind of transaction that should be treated as a disposition, but the only way to know for sure would be to obtain a private letter ruling, which is a cumbersome and fabulously expensive process.