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Date:   Fri, 21 Mar 2003
From:   Michael

Mr. Gray,

I'm hoping you can lead me to a resource where I can confirm something regarding stock options. We sold some ISOs to make a cashless exercise to purchase other ISOs. Will the income from the disqualified disposition be reported on Form W-2? Is the AMT adjustment eliminated for same-day sales?

Thank you in advance for my advice,

Mike

Answer

Hello Mike,

The employer should report the income from the disqualified disposition on Form W-2. No income tax withholding or employment taxes are required for this income under the rules now in effect.

There is no AMT adjustment required when there is a disqualifying disposition of ISO stock in the year of exercise. I don't have time to document this answer.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options - Executive Tax and Financial Planning Strategies.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.