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I have been in company A for ~10 months and I have been granted X amount of ISOs (Incentive Stock Options). Though, none of those ISOs have vested yet.

Now company B just bought company A (deal is not closed yet). Now the company B is offering:

  1. B's NSOs for A's ISOs; or
  2. B's Restricted Stock for A's Common stock (if they were early exercised under 83(b))

Is there a time limit when one can one apply for 83(b) tax treatment? Would it be too late to apply for this tax treatment after 10 months from the ISO grant date?

Would there be a long-term-capital-gain-tax benefit, if 83(b) is done and the stock will be held for more than 2 years?

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You should apply for 83(b) within 30 days. 10 months is too late, sorry.

  • If I would have done 83(b) at the time of grant, how would I be taxed after these 10 months? Would I have to pay short-term capital gain tax anyway (which is the same as regular income tax where I live)? In other words I guess this stock would not qualify as long term capital gain, even If I would have done 83(b) before those 10 months, because I would have owned it for less than a year from exercise time? is that right? – Hans Solo Aug 3 '12 at 1:03
  • "The election must be made no later than 30 days from the date the stock is transferred to the service provider, with no extensions." Not sure how these 30 days should be interpreted: grant date or the early exercise date? Are you sure about your interpretation? – Hans Solo Aug 3 '12 at 19:52
  • When granted. For ISO's it only affects AMT. In any case, you should talk to your tax adviser about this. – littleadv Aug 3 '12 at 20:05
  • It seems so, but the question is why that paragraph refers to the "stock options" as "stock". I interpreted that paragraph as I exercise my ISOs and then within 30 days I have to make 83(b) election with the IRS. Because only at the time of exercise the stock would be actually transferred, not at the day when stock options were granted. – Hans Solo Aug 3 '12 at 20:12
  • Though, gpo.gov/fdsys/pkg/CFR-2008-title26-vol2/xml/… says "property" instead of "stock". In that case property could be interpreted as "stock options". – Hans Solo Aug 3 '12 at 20:15

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