Stock for Cash: Tax Consequences?

[Engineer]

I was with a privately held company that recently merged with a
publicly held company. I am fully vested and have exercised all of my
options, some of my options I exercised in January of this year. The
terms of the merger state that holders of common stock (which I have)
in the private company would receive both stock in the public company
and cash. My question is this: if I receive cash for the portion that I
exercised in January of this year, won't it be treated as a
short-term capital gain? If possible, I would prefer to defer receiving
the a cash for a few months so that it will receive favorable tax
treatment, but is this even an option?

[Arthur Kamlet]

Post by Engineer
I was with a privately held company that recently merged with a
publicly held company. I am fully vested and have exercised all of my
options, some of my options I exercised in January of this year. The
terms of the merger state that holders of common stock (which I have)
in the private company would receive both stock in the public company
and cash. My question is this: if I receive cash for the portion that I
exercised in January of this year, won't it be treated as a
short-term capital gain? If possible, I would prefer to defer receiving
the a cash for a few months so that it will receive favorable tax
treatment, but is this even an option?

Certainly selling stock held less than a year is short term.

And in any case, receiving cash will be a taxable, reportable event.

Was the employer stock options part of an ISO or Non-Qualified
Stock Option (nonstatutory) plan?

Was there an established value set on the stock at time of
exercise?

[Engineer]

Arthur,
Thank you for the response. The options were ISO and there was an
established price set on the stock at the time of exercise (i.e., the
fair market value).

It's clear that I would realize short term capital gains on the *stock*
if I sold them within the 12 month period, but I am interested to know
about the tax treatment on the *cash*. Recall, that this is a stock for
stock & cash conversion. Here's an example to clarify my question:
assume that I exercised my options 2 years ago and then today my
company merged with another company. As terms of the merger each share
of my original company's stock was converted to the new company's stock
PLUS *cash*. If tomorrow I sold my new company's stock it would be
treated as long term capital gains, that I know. But, what about the
cash? I held my stock for longer than 12 months and then it was
suddenly turned into cash -- does it too get treated as long term
captital gains?

Thanks!

Post by Arthur Kamlet

Post by Engineer
I was with a privately held company that recently merged with a
publicly held company. I am fully vested and have exercised all of my
options, some of my options I exercised in January of this year. The
terms of the merger state that holders of common stock (which I have)
in the private company would receive both stock in the public company
and cash. My question is this: if I receive cash for the portion that I
exercised in January of this year, won't it be treated as a
short-term capital gain? If possible, I would prefer to defer receiving
the a cash for a few months so that it will receive favorable tax
treatment, but is this even an option?

Certainly selling stock held less than a year is short term.
And in any case, receiving cash will be a taxable, reportable event.
Was the employer stock options part of an ISO or Non-Qualified
Stock Option (nonstatutory) plan?
Was there an established value set on the stock at time of
exercise?
--
__

[Arthur Kamlet]

Post by Engineer
Arthur,
Thank you for the response. The options were ISO and there was an
established price set on the stock at the time of exercise (i.e., the
fair market value).
It's clear that I would realize short term capital gains on the *stock*
if I sold them within the 12 month period, but I am interested to know
about the tax treatment on the *cash*. Recall, that this is a stock for
assume that I exercised my options 2 years ago and then today my
company merged with another company. As terms of the merger each share
of my original company's stock was converted to the new company's stock
PLUS *cash*. If tomorrow I sold my new company's stock it would be
treated as long term capital gains, that I know. But, what about the
cash? I held my stock for longer than 12 months and then it was
suddenly turned into cash -- does it too get treated as long term
captital gains?

The company will have to tell you how to split the cash/stock
reeceived, but the cash will be treated as sale of partial interet
in the old stock, and the new stock will be assigned a new basis
to reflect its basis vs cah received. No way anyone can tell you
this information from what you have posted. the company will ave
to let you know how to do this.

Since the old stock was an ISO and you held the stock mopre than a
year after exercise, the cost basis of the stock sold for cash plus
the new stock received will be the exercise price you paid to
acquire the old stock.

Then you will allocate, based on figures they will provide to
you, the basis of the stock sold for cash and the stock retained.
The sum will be the total exercise price you paid.

I'd go poking around IRS Pubs 551 & 550.

Post by Engineer

Post by Arthur Kamlet

Post by Engineer
I was with a privately held company that recently merged with a
publicly held company. I am fully vested and have exercised all of my
options, some of my options I exercised in January of this year. The
terms of the merger state that holders of common stock (which I have)
in the private company would receive both stock in the public company
and cash. My question is this: if I receive cash for the portion that I
exercised in January of this year, won't it be treated as a
short-term capital gain? If possible, I would prefer to defer receiving
the a cash for a few months so that it will receive favorable tax
treatment, but is this even an option?

Certainly selling stock held less than a year is short term.
And in any case, receiving cash will be a taxable, reportable event.
Was the employer stock options part of an ISO or Non-Qualified
Stock Option (nonstatutory) plan?
Was there an established value set on the stock at time of
exercise?
--
__

[Engineer]

Thanks Art! Your info has been helpful.