I agree with this, but it is worse than you make it out to be. If the options have increased in paper value since they were issued, which is to say the current strike price of newly issued options is higher than your strike price. You MUST pay US income tax on this &quot;gain&quot; because, according to the IRS, you could turn around and sell your stock at the current price and get cash for it.<p>The craziness is that you cannot actually do that. But you pay the tax anyway, and if they company goes away, or has an exit where the common stock gets no value, you can record the &quot;loss&quot; $3,000 a year until you have used it up.<p>So worst case is your out both the exercise money <i>and</i> the tax money. Wham wham!