Incentive Stock Option?

[TAX4US]

I will try to make this simple. Letter to tp from Co. Co issued stock to tp upon Exercise of option. Stock issued upon exercise of option to tp. Date option granted 6-1-2009. Date of transfer of stock upon exercise of option:10-01-2015. Shares issued 300. Fmv at time of exercise 14k. Option exercise price:7K. Type of option: Incentive Stock Option. Next letter states I have enclosed consideration in the amount of 7k in shares and cash which represents the payment of the option price in full.(TP PAID NO CASH AND NEVER GOT THE ORIGINAL 300). Next letter I have is :exchange securities 300. Cancel securities -150. Shares issued to tp 150.

I have no ISO on W-2. Looked at final pay stub to match W-2. No ISO on paystub or inconsistencies from pay stub to W-2. Also looked at paystub at time of option. No issues there.

OK Now: Do I have a ISO or not? What would be basis for 150 new shares? NOTE: TP paid zero for this and was not in W-2. I do not have a 1099B showing sale of stock. Employer says W-2 is Correct and ISO will not show up. Shares were not a gift, award, or prize OR ADDITIONAL PAY. What do I have?

BTY I have other employees with same thing from same CO with all proper paperwork.

What would you do? My Concern is Basis#1 and what to do with 7k of stock received from Co. Even though their paperwork says ISO. Anyone that can help or suggest a solution to this thank you

One additional thought. If Co kept 150 for the 7K would that indicate tp sold back 150 to keep his 150 that he know owns?

[BP.]

One additional thought. If Co kept 150 for the 7K would that indicate tp sold back 150 to keep his 150 that he know owns?

That's what it looks like to me.

[ttbtaxes]

If it is an ISO, your client should have received a Form 3921. Look for that.

Often, an employee does not have the cash to buy the shares he is exercising. What they'll do is exercise and sell enough shares to provide the cash to buy the remaining shares. In this case, it sounds like he exercised all 300 shs and sold 150 in a simultaneous transaction. When the smoke clears, he has his mitts on 150 shares and compensation income (which should be in his W-2) equal to the spread between the exercise price and the FMV on the date of exercise/sale.

He should also have a 1099-B showing the proceeds on the sale of 150 shares. Be careful, because oftentimes, the basis is wrong on the 1099-B, even though it is a covered sale. In theory, there should be no gain because there was a simultaneous exercise and sale. I've had to report on an adjustment to the basis on the 8949 because the cost basis was wrong.

You client will have AMT income on 150 shs in the amount of the difference between the exercise price and FMV if those 150 were not sold before year's end.

[TAX4US]

My big problem tp paid no cash or even sold anything. They (co) said in exchange for 7K( Neither one of us knows where this 7k came from. I still believe tp has an ISO and the CO messed it all up.

[Lion]

They paid with 150 shares of stock instead of 7K in cash. They did pay to keep only 150 shares. And, they probably got a lot more paperwork describing the whole transaction. Have client go to HR to get copies of all his paperwork. You've been given good advice above.