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Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2308
Experience:  Certified Public Accountant
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We are a Delaware C Corporation founded in September 2015.

Customer Question

We are a Delaware C Corporation founded in September 2015. We issued stock options to advisors and consultants in October 2015. We would like to know the potential taxation scenarios when the options are exercised. Based on the PATH act and IRS section 1202, if the stocks were held over 5 years for a QSBS, the long-term capital gain is 100% excluded. Does that mean if the advisor/consultant exercised their option in October 2020 (after 5 years), the gain can be excluded from taxation 100%? Thank you.
Submitted: 1 year ago.
Category: Tax
Expert:  Mark Taylor replied 1 year ago.

The stock options to the advisors and consultants would not be considered to be original issue. To qualify for IRS Section 1202 the stock need to be original issue. The stock issued in September would qualify. Assuming that the stock qualifies for QSBS and is held for more than five years. The other stock would qualify for Long Term Capital Gain Treatment. The gain from the September stock would be eligible for the exclusion. Please let me know if you have any questions or need clarification.