McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 22

Mark received 10 ISOs at the time he started working for Hendricks Corporation five years ago when Hendricks's price was $5 per share (each option gives him the right to purchase 10 shares of Hendricks Corporation stock for $5 per share).Now that Hendricks's share price is $35 per share, he intends to exercise all options and hold all of his shares for more than year.Assume that more than a year after exercise, Mark sells the stock for $35 a share.a.What are Mark's tax consequences on the grant date, the exercise date, and the date he sells the shares assuming his ordinary marginal rate is 30 percent and his long-term capital gains rate is 15 percent?
b.What are Hendricks's tax consequences on these dates assuming its marginal tax rate is 25 percent?