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IRS Releases Guidance on Treatment of Incentive Stock Options in Reorganizations
Wednesday, January 27, 2016

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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