Incentive Stock Options - Termination of Employment

I know ISOs are exempt from 409A.  In an ISO, you have to be an employee and you only have a limited time post-employment to exercise the ISO.  Under 409A there are specific rules for what it means to have a termination of employment / separation from service.  Is there a similar rule for an ISO?

In other words, can a company continue to employ someone at a very low level (e.g. 10% of previous service level) and still let them vest/exercise the ISO during that period (i.e. treat them as still an employee)?  I know under 409A, that would be a separation (below 20% previous service level), but I can't find any similar guideline for ISOs.

Nothing specific I'm aware of or that I see on a quick pass. 

1.421-1(h) defines the "employment relationship" required for the limitation that ISO recipients be "employees" on the grant date, but there's no firm line on hours or level of service. The three-month post-termination rule in 1.422-1(a)(i)(B) is vague as well. 

The IRS has used the 409A standard in other contexts - "sham" terminations for DB plan purposes, if I recall - so it may still be a good rule of thumb. 

Right or wrong, here, I look to the general rules regarding employee status, i.e., the common law test, and with regard to the termination of that relationship, whether the employee or former employee had a bona fide termination of employment (that term is not stated in 422 but it equates to EBECatty's non-"sham" termination).  As with most of these determinations, the IRS will look at all the facts and circumstances.  Note also that under 409A dipping below 20% does not automatically cause a separation from service (unless the terms of the 409A agreement actually provides that it does) but it only provides a "presumption" of a separation.  This means that under 409A if the facts and circumstances show that a person is still a service provider--though providing less than 20% of their last 36-month average--the IRS could rule that that person did not have a separation from service for 409A purposes.

While nothing specific in the ISO rules in what it means to be employee and amount of time must working at company, you do want to check the stock plan itself for how it defines employee, what is considered a termination, and what is needed for vesting. The person cannot now be considered a consultant, as that would end the ISO status 90 days after employee status ends.