Taxpayer, single, is currently a CA resident. He has ISO fully exercised back in 2016. The basis is 600K. Currently market value is double digits Millions. It is not a public traded company but the stock has a very active secondary market. The price will be expected to keep going up in at least future years.
If he gifts his stocks to his parents, how much can he gifts out to maximize the lifetime gift and estate exemption 5.45M?
TP thoughts he should use the original basis of 600K to report on gift tax return, which means all the ISO 600K can be gifted within the exemption.
There are several other taxpayers in the same company; they all have a double digit market value exercised ISO with very low basis.
1. One is thinking to gift to his non resident alien parents which can saving CA taxes ( more than 13%) on final disposition.
2. One is thinking move to states without any state income tax and then finally disposed his ISO to avoid CA income tax ( he can definitely retired at 30’s).
3. One thought he should have use his self directed Roth IRA to exercise the ISO. Anyone is professional with this issue?
I also want to know if there are any regulation about secondary stock market, such as transaction dates, basis and proceeds reporting to IRS? If the secondary market buyers are in Europe or Asian, would they receive the reports? How can tax preparer know the information is correctly reported? For example, if taxpayer gift the ISO to his mom in UK, then she sold it to another buyer is France, then the France buyer sold to a buyer in Germany etc. It is possible in the capital market. Who should pay US income tax? I believe IRS will eventually figure out; eventually the last cash realization is in the United States. The ISO is from a US company.
I asked them to review their ISO documents thoroughly first.
Any contribution about related tax planning, pitfalls and what should CPA pay attention etc. are truly appreciated.