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To: shoe who wrote (114625)	2/27/2002 3:02:49 PM
From: rkral	Respond to of 152472

IRS usually gets what it wants ... Hi shoe, I guess you would be referring to the 520 shares not sold on the exercise date. As you probably know, for non-qualified employee stock options, the IRS treats the difference between the exercise price and stock price on the exercise date as regular income (compensation). So taxes are due whether the stock is sold or not. (In Shannon's example, as in most of my personal exercises, "just enough" stock was sold to pay the taxes.) The stock price on the exercise date becomes the cost basis. The compensation tax paid on the stock not sold is not taken into consideration when it is ultimately sold. Therefore, I do not see how you can have a huge phantom gain to pay a tax on and then the stock value drops below the tax owed, as you stated. CAVEAT: None of the above is intended as tax advice. I am not a tax accountant. The above does reflect the way I have handled my own taxes, however.