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(if sustained) would be recognized to such individual, the amount
includable in the taxpayer’s gross income shall not exceed the
excess (if any) of the amount realized on such sale or exchange
over the adjusted basis of such shares.
Section 422(d) imposes an annual limit on options that
qualify as ISOs. Section 422(d) provides:
SEC. 422(d). $100,000 Per Year Limitation.--
(1) In general.--To the extent that the
aggregate fair market value of stock with respect to
which incentive stock options (determined without
regard to this subsection) are exercisable for the 1st
time by any individual during any calendar year (under
all plans of the individual’s employer corporation and
its parent and subsidiary corporations) exceeds
$100,000, such options shall be treated as options
which are not incentive stock options.
(2) Ordering rule.--Paragraph (1) shall be
applied by taking options into account in the order in
which they were granted.
(3) Determination of fair market value.--For
purposes of paragraph (1), the fair market value of any
stock shall be determined as of the time the option
with respect to such stock is granted.
In sum, when the aggregate fair market value of stock that a
taxpayer may acquire pursuant to ISOs that are exercisable for
the first time during any taxable year exceeds $100,000, such
options shall be treated as nonqualified stock options (NSOs)
under section 83 (as discussed in detail below).
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