Reply To: Employee stock options NQSO or ISO after splits

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Thank you for the reply and explanations.

(1) Yes, the NQSO options I paid tax on the bargain element between the exercise price and the FMV at the time of the exercise. It was taxed as additional income which at the time threw me off totally because it kicked my income bracket to another level so I was taxed even higher. So now I have to pay capital gains taxes on the difference between the FMV at the time and the buy back price.

(2) I have to look further into whether I paid AMT when I exercised the ISO. I was incorrect in stating I didn’t pay taxes, I did, but not for exercising the option, but because at the time I exercised it cashlessly. So I gave up some shares to pay for it. Again because I did not do my homework correctly, at the time I was thinking I am exercising stock options I held for a long time, if there would be any taxes it would be long term gains. Oh boy was I wrong, the cashless exercise was equivalent to an instant short term capital gains, I exercised and sold shares the same day and used the cash to pay for the rest of the shares. Taxed as short term gains. Did I pay any AMT? I don’t think but I will double check.

(3) So I need to split the shares evenly. I was hoping to avoid that by calculating the basis on the initial lot of the shares and consider the split shares a basis of zero so that I can avoid having to keep track of how many shares of NQSO and ISO in each lot for the future. Looks like I can’t do that any more. Oh well.

Another question I have is, because it’s been a long time with these stock options, and my original company has been merged with another, then they too were acquired by another company…and then instead of paper certificates, they company hired COMPUTERSHARE and we sent in our paper certificates so they can manage them electronically and do the private market buy backs. They no longer have the cost basis information and didn’t include that with the 1099. They put 0 as the cost basis. This means I have to adjust the cost basis to reflect the actual numbers. Is that typical? Does that trigger an audit from the IRS?