Example Problem 3-4\ Scenario 2\ Mr. Dietrich, who is employed by Public Co. Ltd., was granted an option in year one to purchase up to 5,000 common shares at

$13

after completion of his fifth year of employment. The fair market value of the common shares at the time of granting the right was

$12

. He does not have any other shares.\ During Mr. Dietrich's seventh year of employment he decided to exercise part of his right and purchased 1,000 shares with a fair market value of

$15

at that date.\ Three years later, Mr. Dietrich sold all the shares at $25 per share.\ REQUIRED\ Discuss the tax implications of each of the above transactions now that the option price is

$13

per share (instead of the

$10

in the first scenario).

Scenario 2 Mr. Dietrich, who is employed by Public Co. Ltd., was granted an option in year one to purchase up to 5,000 common shares at $13 after completion of his fifth year of employment. The fair market value of the common shares at the time of granting the right was $12. He does not have any other shares. During Mr. Dietrich's seventh year of employment he decided to exercise part of his right and purchased 1,000 shares with a fair market value of $15 at that date. Three years later, Mr. Dietrich sold all the shares at \$25 per share. REQUIRED Discuss the tax implications of each of the above transactions now that the option price is $13 per share (instead of the $10 in the first scenario)