Ok, while speculating, try this one:
I (hypothetically) have incentive stock options (ISOs) from
my company which are deep in the money. I also have a
self-directed IRA at a broker who will execute ISOs, that
is, the broker will issue a check to the company along with
an option exercise form duly executed and receive the stock
back into a brokerage account.
Now, I generate a cash balance in the IRA sufficient to
exercise the ISO, and the broker executes it with IRA funds
and receives the stock issued into the IRA.
What are my arguments to the IRS? Well, one argument is that
ultimately I have converted long-term gain (which if held
long enough the ISO would generate -- a qualified ISO, BTW)
into ordinary income which the IRA will ultimately generate.
This sounds pretty good. The IRS might even buy it.
Here's one big advantage (if the IRS buys it): Suppose I
have a number of different ISOs, deep in the money, and
if I exercise them I have to come up with the cash for
the option price, which will cost me capital gains to
liquidate positions to raise that kind of money. Alternatively,
I could exercise one or two ISOs, sell them, then use the
proceeds to buy up the rest (say they're near expiration
to make this strategy reasonable). This will cost ordinary
income on the ISOs sold, generally speaking.
Neither of these are very palatable, BUT if the IRA buy works,
THEN I can buy a couple of ISOs into the IRA, liquidate them
without tax consequences, then use those proceeds to buy up
more, and so on, till they're all bought up. Tax is deferred,
but still I've converted (potential) long term gains into
(for sure) ordinary income, including the original cost.
I wonder if the IRS would buy that. Any opinions?
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