Certified Employee Benefit Specialist (CEBS) RPA 1 Practice Exam 2025 – Your All-in-One Guide to Mastering Retirement Plans!

For favorable tax treatment under employee stock purchase plans (ESPP), the stock must be held for a specific duration after exercise to qualify for capital gains treatment rather than ordinary income tax. The requirement is that the stock must be held for at least two years after the grant date and one year after the exercise date. This means that to benefit from the preferred tax treatment, employees are encouraged to maintain the shares for this minimum timeframe.

This provision aims to encourage long-term investment in the company and aligns the interests of employees with those of shareholders. Meeting both conditions ensures that any capital gains realized upon selling the stock are taxed at the long-term capital gains rate, which is generally lower than ordinary income rates. Therefore, option B, which specifies the necessity of holding the stock for two years after the grant and one year after exercise, is the correct answer.