Ruby Corporation grants stock options to Iris on February 1, 2017. The options do not have a readily ascertainable value. The option price is $100, and the FMV of the Ruby stock is also $100 on the grant date. The option allows Iris to purchase 200 shares of Ruby stock. Iris exercises the option on August 1, 2018, when the stock's FMV is $150. Iris sells the stock on December 5, 2019 for $400. Determine the amount and character (i.e., ordinary, LTCG or STCG) of income recognized by Iris and the deduction allowed Ruby Corporation in 2017, 2018 and 2019 under the following assumptions:a.The stock option is an incentive stock option.b.The stock option is a nonqualified stock option.

What will be an ideal response?


a. Incentive stock option

?Iris' IncomeRuby Corp's Deduction
2017 option grant00
2018 option exercise00
2019 stock sale$60,000 LTCG
200 shares × ($400 - 100)
0
b. Non-qualified stock option
?Iris' IncomeRuby's Deduction
2017 option grant00
2018 option exercise$10,000 ordinary income
200 shares × ($150 - 100)
$10,000
2019 stock sale$50,000 LTCG
200 shares × ($400 - 150)
0

Business

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