When an acquisition deal is structured such that the target company’s employee stock options will be “cashed out” or automatically deemed “net exercised,” it can result in the payment of substantial payroll taxes by both the buyer and the employee that may have been avoided. There are numerous ways to handle employee stock options, all of which have varied tax consequences. For each treatment, it is important to understand the unique tax implications, as well as how those laws may be used most favorably for the participants involved. Additionally, understanding ideal treatment of an Incentive Stock Option (ISO) as well as structuring flexible plans can offer a solid solution for buyers and employees resulting in positive tax benefits.

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