The NASPP Blog

Sometimes employees ask the darnedest things!  Questions that those of us that work with stock compensation day-in and day-out never think about.  A different perspective can lead to some surprising inquiries.

ISO/ESPP Holding Period–365 Days or 12 Months?

A stock plan administrator recently emailed me because an employee was challenging the company’s application of the statutory holding period to shares he had acquired under an ISO.  The employee had exercised the ISO on June 13, 2007 and sold the shares on June 13, 2008. The company treated the sale a disqualifying disposition.  The employee argued that the sale was not a disqualifying disposition.  His argument: leap year. 

2008 was a leap year, so February had 29 days instead of the usual 28.  The employee argued that with the extra day in February, his sale occurred a full 366 days (which he considered to be one day longer than a year) after his exercise and thereby met the ISO holding period (the option had been granted several years ago).

What Does the IRS Think?

Both the stock plan administrator and I were pretty sure the employee was wrong, but, to be honest, it wasn’t a question I had ever thought about before.  So I looked it up in the final ISO regs, and wouldn’t you know it, the regs include an example that involves a leap year (§1.422-1(b)(3), Example 1, on pg 45).  The example involves an ISO that is granted on June 1, 2006 and exercised on August 1, 2006.  The regs specifically state that the employee has to hold the stock until June 2, 2008 (two years from the date of grant) to engage in a qualifying disposition.  Thus, the extra day in February doesn’t count.

I wonder if the IRS specifically used that example because it included a leap year?

Got More Surprising Employee Inquiries?

If you have received questions from your employees that you think are especially interesting or bring a new perspective to stock compensation, I’d love to hear about them.  You can email them to me at the address listed in my NASPP Directory Record.

NASPP Conference Session of the Week
The week’s session is The Economy and Your Stock Plans: New Approaches to Granting and Paying Out Equity Awards.  This panel will take a strategic look at how the economy has impacted stock plan design.  The panelists will discuss tax, governance and disclosure considerations relating to the annual grant process; strategies for granting new equity awards with respect to significantly depreciated equity; approaches to establishing performance goals in the current economic environment; considerations relating to the exercise of “positive” discretion to pay awards when performance goals are not achieved; and many other practical issues affecting the compensation committee planning process. 

Last Chance Early-Bird Savings on NASPP Conference
You have just a few days left to take advantage of the early-bird discount on registration for the 17th Annual NASPP Conference (and also our pre-conference sessions, Restricted Stock Essentials and The 4th Annual Proxy Disclosure Conference). Don’t wait any longer–after June 26, the rates go up!

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

• Register for the 17th Annual NASPP Conference: “Last-chance early-bird savings” until June 26.
• Make your hotel reservations for the NASPP Conference (don’t delay–the hotel is filling up fast).
• Renew your NASPP membership for 2009 (if you aren’t an NASPP member, join today).
• Complete this month’s Compliance-O-Meter quiz on Identifying Mobile Employees.
• Don’t miss this afternoon’s webcast on Bankruptcy 101 for Compensation Professionals.

– Barbara