Case Conclusion Date: August 21, 1991
Practice Area: Estate Planning
Outcome: No income when ISO stock put into trust.
Description: An employee was issued Incentive Stock Option Stock by his employer .He did not recognize income when the option to purchase was issued to him and he did not recognize income when he exercised the option and acquired the stock. There was substantial deferred gain, that being the difference between what he paid for the stock and what it was worth. The employee and his wife had created a revocable trust. The employee transferred the stock to the trust. When ISO stock is disposed of within a certain time period, the deferred gain becomes immediately taxable. The employer took the position that the transfer to the revocable trust was a disposition and it issued a form 1099 to the employee. The employee then asked me to apply on his behalf to the Internal Revenue Service for a private letter ruling stating that the transfer was not a disposition and that taxpayer did not recognize income. I obtained a 100% favorable ruling. It is described in an article I wrote entitled'When the Transfer of Incentive Stock Option Stock to a Trust Will Be Treated as a Taxable Disposition' ,which was published in Estate Planning, Trust & Probate News Fall 1991 Volume 11 No. 3 at page 14. A complete copy of the ruling is attached to the article.