Which is not a step to complete a cashless exercise of a non

Which is not a step to complete a cashless exercise of a nonstatutory stock option?

a) The brokerage firm loans money to the taxpayer to purchase the stock.

b) The taxpayer purchases the stock.

c) The taxpayer writes a check to the brokerage firm to repay the loan.

d) The brokerage firm sells the stock.

Solution

Alternatives:

a) The brokerage firm loans money to the taxpayer to purchase the stock.

This is a cashless exercise of a nonstatutory stock option because:

What you are doing is technically called buying on margin. The brokerage lets you buy on margin in this case because they know there will be a quick repayment. The advantage of this technique is you don\'t need the cash on hand.

b) The taxpayer purchases the stock

This is patently not a cashless exercise because cash is paid and received.

c) The taxpayer writes a cheque to the brokerage firm to repay the loan.

Whether a cheque changes hands or cash changes hands, the exercise is not cashless.

d) The brokerage firm sells the stock.

This is not a cashless exercise because the brokerage firm receives cash on behalf of the taxpayer and pays it over to him.