CEP Tax Planning & Compliance 3

Question 1

RSUs are taxed as ordinary income at:

Accepted Answer

Vesting date, based on FMV of shares delivered

Answer

RSU income is recognized on the vesting/settlement date when shares are delivered, based on FMV at that time.

Question 2

An ESPP that qualifies under Section 423 must offer all full-time employees a purchase price that is no less than:

Accepted Answer

85% of FMV on the offering date or purchase date, whichever is lower

Answer

Section 423 ESPPs may discount the purchase price to as low as 85% of the FMV on either the offering date or the purchase date, whichever produces the lower price.

Question 3

For a qualifying ESPP disposition, how is the discount portion (up to 15%) taxed?

Accepted Answer

As ordinary income in the year of sale, capped at the actual gain

Answer

In a qualifying disposition, the lesser of the actual gain or the purchase-date discount is treated as ordinary income; any remaining gain is long-term capital gain.

Question 4

A disqualifying ESPP disposition occurs when shares are sold:

Accepted Answer

Before meeting the 2-year-from-offering and 1-year-from-purchase holding requirements

Answer

A disqualifying disposition happens when shares are sold before holding them for 2 years from the offering date AND 1 year from the purchase date.

Question 5

Under Section 409A, a nonqualified deferred compensation plan that fails to comply may subject the employee to:

Accepted Answer

Immediate income inclusion plus a 20% additional tax and interest

Answer

Section 409A violations trigger immediate income inclusion of the deferred amount, plus a 20% additional tax and an interest penalty at the underpayment rate plus 1%.

(CEP) Certified Equity Professional Practice Test

(CEP) Certified Equity Professional Practice Test

CEP Tax Planning & Compliance 3