The transaction is viewed as a disposition (sale) of the shares in the year we transact. Outside tax attorneys have vetted our tax treatment and have provided a memo, which is included in the documentation you would receive from us.
Let’s use an example. Let’s say you exercise your options at $1 per share and hold the shares for over one year. In 2015, you transact with us at $5 per share, and in 2016 the company goes public at $10 per share. In 2015, you would report the income on the transaction and pay taxes on $4 per share ($5 – $1). You would be taxed at the long-term capital gains rate since you held the shares for at least one year.
*Please note that we cannot provide tax advice. Consult your financial or tax advisor for more specific details and confirmation of your situation.