What are the requirements of Internal Revenue Code Section 422?
Incentive stock options provide favorable tax treatment to the employee, but for an option to be considered an incentive stock option for tax purposes, it must satisfy certain requirements set forth in Internal Revenue Code Section 422. These requirements are as follows: The incentive stock option may be granted only to an employee of the issuing corporation (or its parent or subsidiary). Employee status generally must be maintained from the grant of the option until its exercise, although an employee may exercise the option within three months following a termination of employment (within one year if disabled). The written stock plan must specify the total number of shares that may be purchased. It must also specify the employees or class of employees who are eligible to receive the stock options. Additionally, the plan must be approved by the corporation’s stockholders within 12 months before or after the plan is adopted by the employer’s board of directors. The option cannot provide
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