The tax treatment of junior class shares of stock can be a complex issue, but generally, the following principles apply: I. The employee is not taxed when the junior class shares are purchased and issued. This statement is not always true. The tax implications at the time of purchase and issuance of shares depend on the specifics of the stock option plan. If the shares are purchased at a discount, the discount may be taxable as ordinary income. II. The employee is not taxed when the junior class shares are converted to common shares. This statement is also not always true. The tax implications at the time of conversion depend on the specifics of the stock option plan. If the conversion involves an increase in value, this increase may be taxable