CEP Employee Stock Purchase Plans (ESPPs) 2

Question 1

For a Section 423 ESPP, what is the required holding period from the date of grant (offering date) to achieve a qualifying disposition?

Accepted Answer

2 years

Answer

To qualify for favorable tax treatment, shares must be held for more than two years from the offering (grant) date.

Question 2

In addition to the holding period from the offering date, what is the required holding period from the purchase date for a qualifying disposition under Section 423?

Accepted Answer

1 year

Answer

Shares must also be held for more than one year from the purchase date; both tests must be satisfied for a qualifying disposition.

Question 3

In a qualifying disposition of Section 423 ESPP shares purchased at a 15% discount with a look-back, how is the ordinary income component calculated?

Accepted Answer

The lesser of the actual gain on sale or the discount from FMV at the offering date

Answer

In a qualifying disposition, ordinary income equals the lesser of (a) the actual gain realized or (b) the discount from the FMV at the start of the offering period.

Question 4

What happens to any gain above the ordinary income component in a qualifying disposition of ESPP shares?

Accepted Answer

It is treated as long-term capital gain

Answer

The gain in excess of the ordinary income amount in a qualifying disposition is treated as long-term capital gain, receiving preferential tax rates.

Question 5

Which IRS form must an employer file to report the transfer of stock acquired through a Section 423 ESPP?

Accepted Answer

Form 3922

Answer

Employers must file Form 3922 (Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c)) when ESPP shares are first transferred.

(CEP) Certified Equity Professional Practice Test

(CEP) Certified Equity Professional Practice Test

CEP Employee Stock Purchase Plans (ESPPs) 2