Wash Sale Risk for Employees Selling Company Stock

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Employees may sell stock that has dropped since an option exercise, RSU vesting, or ESPP purchase to harvest capital losses, then soon repurchase it as shares undervalued. They need to know about the wash sale rules, particularly if selling shares from stock compensation.


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Generally when ESOs are exercised,  sales of stock for the payment of the exercise price and taxes takes place, whether the sale is made to the company or in the market. The grantee can then decide to sell or hold the net remaining shares.

The same sales happens when RSUs vest except there is no payment of the exercise price.

If the grantee holds some stock received and the stock go down after he/she  exercises ESOs or  the RSUs vest, a sale of the stock that was held would give a capital loss for tax purposes. 

However, if the grantee is an officer or director  and the shares are then bought back at a lower price within 6 months of the sales for the exercise price payment or for taxes , the profit from the sales and the purchases are probably subject to Section 16 (b) of the Securities Exchange Act of 1934 and the differences between the purchase and sales are recoverable by the company.

John Olagues

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