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Your AMT basis rises to the higher FMV but that isn’t helpful unless you are subject to AMT nearly every tax year.

If not, then you are collecting it back in little bits and pieces of credit over many years which isn’t a good deal.

Let’s say that the market price a week ago was .00, and you backdate the options to a week ago.

Backdating destroys the equivalent of capital gains treatment and basically doubles your tax.

The roots of the scandal date back to 1972, when an accounting rule was put in place permitting companies to avoid recording executive compensation as an expense on their income statements so long as the income was in the form of stock options that were granted at a rate equal to the market price on the day of the grant, often referred to as an at-the-money grant.

This enabled companies to issue enormous compensation packages to senior executives without notifying shareholders.

With NSOs, you are definitely paying tax at the highest possible ordinary income tax rate.

With ISOs, you might pay AMT and only if you are subject to AMT.

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