Client Advisory Services Flashcards
7 cards from real CEP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Client Advisory Services flashcards as text
A participant asks their equity plan advisor whether they should exercise ISOs before an anticipated IPO. Which consideration is MOST critical to address first?
Answer: Alternative Minimum Tax (AMT) exposure from exercising ISOs
AMT exposure is the most critical first consideration when advising on ISO exercises because the spread at exercise is an AMT preference item that can trigger significant tax liability.
Which of the following best describes the 'same-day sale' (cashless) exercise method for stock options?
Answer: The participant borrows funds from the broker, exercises options, sells all shares, and repays the loan on the same day
A same-day sale (cashless) exercise involves the broker extending credit to exercise the options, then selling all shares on the same day to repay the loan and cover taxes.
Under SEC Rule 144, which condition must an affiliate of a public company satisfy when selling restricted or control securities?
Answer: Volume limitations capping sales at the greater of 1% of outstanding shares or average weekly trading volume
Rule 144 imposes volume limitations on affiliates, capping sales at 1% of outstanding shares or average weekly trading volume over the prior four weeks, whichever is greater.
A client received RSUs that vested on December 15. They ask if they can defer income tax by delaying settlement to January of the next year. What is the advisor's correct response?
Answer: No, RSU income is generally recognized at vesting, and delaying settlement post-vesting typically does not defer taxation without a valid 409A deferral election made well in advance
RSU income is typically recognized at vesting, and a last-minute settlement delay does not defer taxation; a valid Section 409A election must generally be made at least 12 months before the payment date.
When a company implements a 10b5-1 plan for an executive, which of the following is a key requirement for the plan to provide an affirmative defense against insider trading allegations?
Answer: The plan must be established when the insider is not aware of material non-public information
A 10b5-1 plan provides an affirmative defense only if it was established at a time when the insider did not possess material non-public information.
A participant forfeits unvested RSUs upon resignation. From a tax perspective, what is the consequence?
Answer: There is no tax consequence because no income was ever recognized on the forfeited unvested RSUs
Unvested RSUs have not yet triggered income recognition, so forfeiture of unvested awards results in no tax consequence to the participant.
Which holding period rule applies to shares acquired through an ESPP qualifying disposition?
Answer: Shares must be held more than 2 years from the offering date AND more than 1 year from the purchase date
A qualifying disposition under Section 423 ESPP requires holding shares for more than two years from the offering date AND more than one year from the purchase date, both conditions must be met.