I received ISOs over last 8 years and in 2020 company did SPAC and we were cashed out any shares we had purchased (half). No 1099B issued. How do I declare this?

[kennethcooney]

They were ISOs, but cancelled and I was given cash in place (since I was not accredited investor).

[hbl3973]

Just to clarify, were you awarded ISO options but never exercised them?  If so, according to http://archives.cpajournal.com/old/07688672.htm  the cancellation tax treatment is as if you had cashed in a nonqualified option, i.e. Section 83 https://www.law.cornell.edu/uscode/text/26/83 applies.  In this scenario, the income is taxed as ordinary income, i.e. wages.

[jtax]

One very good resource on the nuances of various equity compensation schemes is at 

https://fairmark.com/compensation-stock-options/

they have articles, forums, and an excellent book I have used in the past:

Consider Your Options

https://amzn.to/2PctMVU

Don't get me wrong, you might get exactly what you need from this volunteer forum, but fairmark specializes in equity compensation.

[kennethcooney]

thanks for taking time to read my question. I exercised half of them over the years and the shares I did exercise were converted to cash and handed out (based on share price at that time), the unexercised shares were converted to new shares of the new stock when the SPAC happened and I still retain those. I am just not clear how to report the cash I received for the shares I exercised and given cash for. 

[kennethcooney]

thanks, that does look like a great resource. I don't think it has my specific situation, but I will definitely use as a resource going forward.

[jtax]

That is why I suggested the fairmark site/book. They go into details about that. It is pretty complicated.

Have you walked through the TT ISO questions? Seems like the shares converted to cash probably results in:

• no regular income when exercised unless you were forward thinking and 83b election (always the right think if the shares are cheap)
• AMT (alternative minimum tax) income in the year of exercise for FMV - strike price  [might or might not have resulted in actual AMT tax)
• the conversion of the shares (not options) to cash
  • capital gain = cash received - basis
    • basis would be the strike price you paid or the FMV if you did an 83b election
    • long-term/short term would be based on exercise date
    • you must compute this for both regular and AMT.  You AMT basis is different because you are AMT taxed on FMV - strike price. So your AMT gain will be different than your regular gain.

The Fairmark Consider You Options book is excellent in describing all of this.

The real question is what about the shares in the new company you got for the options. My first inclination is that would be a deemed sale or exchange with proceeds equal to the FMV of the new company's shares you received and a basis of zero. Perhaps holding period starting when the options were vested. Perhaps when granted. There could be an exception of some sort for a merger and trading old stock for new stock. Perhaps complicated by you getting stock for options.

My suggestion is that you do further research or get a CPA, enrolled agent, or tax attorney to advise you on that part. Be sure to find one who deals with equity compensation all the time, this is a specialty. You might want to file an extension and seek professional guidance after May 17. I would recommend that if the amounts involved are large and you can't find clear answers.

[kennethcooney]

Thank you for your long response, I think I need to hire a CPA with experience in equities since it is a pretty unusual circumstance. The amounts are substantial enough to warrant the cost of hiring someone. Thank you again.

[jtax]

@kennethcooney I think that is a smart idea.

You might also search for "tax free reorganization" ...  See for example this fairmark post. https://fairmark.com/investment-taxation/capital-gain/stock-sales/cash-received-in-mergers/