Lily received 100 stock options (each option provides a right to purchase 10 shares of ABC stock for $15 per share) at the time she started working for ABC three years ago when ABCs stock was worth $10 per share. Now ABCs stock is worth $20 per share and she intends to exercise all her options. After acquiring the 1,000 ABC shares with her options, she held the shares for over one year and sold them at $30 per share.

Situation A

If the stock options are incentive stock options what are the tax consequences to Lily and ABC on the grant date, the exercise date and the date she sold the stock? Would it make any difference if she sold the stock 6 months after the exercise date? If so, how?

Situation B

If the stock options are nonqualified stock options what are the tax consequences to Lily and ABC on the grant date, the exercise date and the date she sold the stock? Would it make any difference if she sold the stock 6 months after the exercise date? If so, how?