I’d like some advice on how to file for the following scenario:
1) I was issued ISO stock options at employee at a foreign pre-IPO startup company.
2) I left that company before they IPOed. I decided to exercise my options and purchased them at a cost basis of $0.10 / share. At the time there was no difference in value between what I paid and fair market value, so I did not have to pay additional taxes. I received a Form 3921 from that company and filed this transaction in my taxes the following year. Note this transaction starts the 1 year clock of ownership to qualify as a long term capital gains sale.
3) 2 years after I purchase those Class A shares, the company just went IPO, listed on NASDAQ using American Depositary Shares (ADS). The former company has informed me that the Class A shares will convert to ADS shares at a 4:1 ratio.
4) I now plan to sell those ADS shares.
Question:
1) How do I report the income of the sale of ADS shares? Does this receive long term capital gains treatment? How does the IRS associate that I held those shares for more than 1 year (as filed in my previous year return and also disclosed in the 3921) to my ADS sale?
2) What do I report as the tax basis? Since it’s 4 class A shares : 1 ADS share, is that $0.40 / share? How do I do this TurboTax?
