7552 / How is a disposition of stock acquired pursuant to the exercise of an incentive stock option taxed if the transfer of the stock to the individual was a qualifying transfer?

If the transfer of stock to an individual upon exercise of an incentive stock option was a qualifying transfer (see Q 7546), then no taxable event occurs until the stock is disposed of.¹ At the time of disposition, the general rules for treatment of a sale of stock will apply; thus, the taxpayer will recognize capital gain or loss to the extent of the difference between the sale price of the stock and its adjusted basis. See Q 7517 regarding the sale of stock, and Q 702 for an explanation of the treatment of capital gains and losses.

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1.   IRC § 421(a).

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