Tender offer tax considerations

Direct answer

Selling shares into a tender offer is generally a taxable capital transaction. The exact treatment depends on:

• The type of security (vested common, vested ISOs, vested NSOs, RSUs)
• Your holding period
• Whether the transaction triggers an option exercise (cashless exercise into the tender)
• Your jurisdiction
• Whether the buyer is the company (self-tender) or a third party

This page is editorial reference, not tax advice. Always consult a qualified tax professional for your situation.

Common patterns

Selling already-vested common stock you own outright

• Generally a capital transaction
• Long-term capital-gains rates if held >1 year, otherwise short-term
• Cost basis is what you paid (or what you were taxed on, e.g., for RSUs at vest)
• Typically no withholding by the paying agent — but reporting still happens

Cashless exercise of NSOs into the tender

• The spread between fair market value at exercise and the strike price is generally ordinary income
• Withholding applies at supplemental wage rates (federal, state, FICA, Medicare)
• The post-exercise share basis equals the FMV at exercise; future appreciation between exercise and tender is generally short-term capital gain (or loss)

Cashless exercise of ISOs into the tender

• Disqualifying disposition — selling within the same calendar year as exercise generally disqualifies the ISO from preferential treatment
• The spread typically becomes ordinary income; the rest is capital
• Carefully model AMT consequences if exercising ISOs separately from the tender

Self-tender (company is the buyer)

• The §302 framework determines whether proceeds are treated as a sale or as a dividend
• Different rules apply for U.S. and non-U.S. holders

Where withholding shows up

When the offer involves an option exercise or RSU-related transaction, the paying agent withholds on the ordinary-income portion. Sellers receive net proceeds after withholding. Final tax true-up happens on the seller’s annual return.

Practical seller checklist

• Know your security type and holding period before the offer launches
• Model proceeds net of withholding, not gross
• If exercising options into the tender, model state + federal + FICA + Medicare carefully
• Get qualified advice if you hold ISOs and are considering disqualifying dispositions

What companies should make sure their offer materials cover

• Clear, security-type-specific tax sections in the offer-to-purchase
• Worked examples for the most common situations
• A pointer to qualified-tax-advisor resources
• Clear statements about what the paying agent will and will not withhold

This page is editorial reference only — not tax, legal, or investment advice.