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IRS Releases Guidance on Treatment of Incentive Stock Options in Reorganizations

IRS Releases Guidance on Treatment of Incentive Stock Options in Reorganizations
Wednesday, January 27, 2016
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On May 8, 2015, the Office of Chief Counsel of the Internal Revenue Service released Chief Counsel Advice Memorandum No. 201519031 (available here) describing the difference in tax consequences of a disposition of shares acquired upon exercise of an incentive stock option in a merger that constitutes a reorganization as compared to a merger that does not constitute a reorganization. The IRS Office of Chief Counsel generally advised that where the shares are converted into acquirer shares and other consideration during a merger that constitutes a reorganization under Section 368(a), for purposes of gain recognition and holding period requirements, there is no disposition of the shares. However, there is a disposition of the shares where the merger does not constitute a reorganization under Section 368(a) (and neither Section 354 nor Section 356 applies).

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