CPM Executive Compensation & Equity Plans

Question 1

Which type of stock option allows employees to potentially avoid ordinary income tax at exercise if statutory holding requirements are met?

Accepted Answer

Incentive stock options (ISOs)

Answer

Non-qualified stock options (NQSOs)

Answer

Stock appreciation rights (SARs)

Answer

Restricted stock units (RSUs)

Question 2

When an employee exercises a non-qualified stock option (NQSO), the spread between the exercise price and fair market value is treated as:

Accepted Answer

Ordinary income subject to federal income tax and FICA withholding

Answer

Long-term capital gain income

Answer

A tax-exempt fringe benefit

Answer

Deferred compensation under Section 409A

Question 3

Restricted Stock Units (RSUs) are generally recognized as taxable income to the employee at:

Accepted Answer

Vesting date

Answer

Grant date

Answer

Sale date

Answer

Board approval date

Question 4

For Incentive Stock Options (ISOs), which item is a preference item for Alternative Minimum Tax (AMT) purposes in the year of exercise?

Accepted Answer

The spread between the exercise price and FMV at exercise

Answer

The grant date fair market value of the options

Answer

The vesting date value of the shares

Answer

The final sale price minus the exercise price

Question 5

Under IRC Section 83(b), an employee who receives restricted stock (not RSUs) may elect to:

Accepted Answer

Recognize income at the grant date based on current FMV rather than waiting until vesting

Answer

Defer income recognition until the stock is sold

Answer

Convert all future appreciation into tax-free income

Answer

Exclude the stock value from gross income entirely

Question 6

Stock Appreciation Rights (SARs) that are settled in cash are classified for accounting purposes as:

Accepted Answer

Liability awards with compensation expense marked to market each period

Answer

Equity awards with a fixed expense recognized at grant

Answer

Capital gains instruments for the recipient

Answer

Deferred compensation exempt from payroll taxes

Question 7

Which IRS form must employers file to report each employee exercise of an Incentive Stock Option (ISO)?

Accepted Answer

Form 3921

Answer

Form W-2

Answer

Form 1099-B

Answer

Form 3922