Which statement regarding incentive stock options (ISOs) is correct?

Which statement regarding incentive stock options (ISOs) is correct?

• A. An employee can gift an ISO to their child while employed.
• B. A company can grant ISOs to an employee's spouse or dependent.
• C. ISOs may not be transferred during the employee's lifetime.
• D. A company cannot grant NQSOs to an employee's family members.

Answer: (C)

Incentive stock options (ISOs) are a type of employee stock option that provides certain tax benefits if specific conditions are met. One key characteristic of ISOs is that they cannot be transferred during the employee's lifetime, except under limited circumstances such as through a will or estate, which is why the correct answer highlights this feature. The restriction on transferability means that ISOs are designed to be an employee benefit that directly aligns with the employee's performance and tenure at the company. This ensures that the employee retains the options as a reward for their contributions, rather than diluting the incentive by allowing transfer to family members or other parties who do not contribute to the company. Regarding the other choices, it's important to note that gifting ISOs during employment is not permissible, as the options must be exercised by the original employee to qualify for the favorable tax treatment associated with ISOs. Additionally, while companies can offer various types of stock options, including non-qualified stock options (NQSOs) to family members, this does not relate to the nature of ISOs, which have more restrictive conditions.

Incentive stock options (ISOs) are a type of employee stock option that provides certain tax benefits if specific conditions are met. One key characteristic of ISOs is that they cannot be transferred during the employee's lifetime, except under limited circumstances such as through a will or estate, which is why the correct answer highlights this feature.

The restriction on transferability means that ISOs are designed to be an employee benefit that directly aligns with the employee's performance and tenure at the company. This ensures that the employee retains the options as a reward for their contributions, rather than diluting the incentive by allowing transfer to family members or other parties who do not contribute to the company.

Regarding the other choices, it's important to note that gifting ISOs during employment is not permissible, as the options must be exercised by the original employee to qualify for the favorable tax treatment associated with ISOs. Additionally, while companies can offer various types of stock options, including non-qualified stock options (NQSOs) to family members, this does not relate to the nature of ISOs, which have more restrictive conditions.