CEP Client Advisory Services 2

Question 1

A participant asks their equity plan advisor whether they should exercise ISOs before an anticipated IPO. Which consideration is MOST critical to address first?

Accepted Answer

Alternative Minimum Tax (AMT) exposure from exercising ISOs

Answer

AMT exposure is the most critical first consideration when advising on ISO exercises because the spread at exercise is an AMT preference item that can trigger significant tax liability.

Question 2

Which of the following best describes the 'same-day sale' (cashless) exercise method for stock options?

Accepted Answer

The participant borrows funds from the broker, exercises options, sells all shares, and repays the loan on the same day

Answer

A same-day sale (cashless) exercise involves the broker extending credit to exercise the options, then selling all shares on the same day to repay the loan and cover taxes.

Question 3

Under SEC Rule 144, which condition must an affiliate of a public company satisfy when selling restricted or control securities?

Accepted Answer

Volume limitations capping sales at the greater of 1% of outstanding shares or average weekly trading volume

Answer

Rule 144 imposes volume limitations on affiliates, capping sales at 1% of outstanding shares or average weekly trading volume over the prior four weeks, whichever is greater.

Question 4

A client received RSUs that vested on December 15. They ask if they can defer income tax by delaying settlement to January of the next year. What is the advisor's correct response?

Accepted Answer

No, RSU income is generally recognized at vesting, and delaying settlement post-vesting typically does not defer taxation without a valid 409A deferral election made well in advance

Answer

RSU income is typically recognized at vesting, and a last-minute settlement delay does not defer taxation; a valid Section 409A election must generally be made at least 12 months before the payment date.

Question 5

When a company implements a 10b5-1 plan for an executive, which of the following is a key requirement for the plan to provide an affirmative defense against insider trading allegations?

Accepted Answer

The plan must be established when the insider is not aware of material non-public information

Answer

A 10b5-1 plan provides an affirmative defense only if it was established at a time when the insider did not possess material non-public information.

(CEP) Certified Equity Professional Practice Test

(CEP) Certified Equity Professional Practice Test

CEP Client Advisory Services 2