I worked for a company that went public at $18/share in 2000. During the lockup period the price of the stock went as high as $202/share. Over the next two year

I worked for a company that went public at $18/share in 2000. During the lockup period the price of the stock went as high as $202/share. Over the next two years, the price trended downwards to around $20/share. Pre-IPO employees were encouraged to pay for shared before they vested. The idea here is that you can hold those options for 5 years and get capital gains rates on that appreciation which for small companies was 10%. I.E, you pay now, shares vest later. According to the AMT, you will owe taxes on those shares equal to the market price when they become yours minus what you paid for them. That is, when the stock vests. Not when you pay for it, and not when you sell it. So you can buy 1000 pre ipo shares for $1 each. Company goes public hits $100/share. You think it's going higher so you hold. Shares drop to $10. Now you're in a pickle. You owe taxes on 1000 shares * $99 of gain. But you're only sitting on 1000 shares * $9 of gain. When somebody finds themselves in this situation, they must sell those shares before that tax year ends, which means you're now paying income taxes instead. If your tax year has ended you are out of luck. The one thing that stops this from being a real problem for most founders is the IRS 83(b) form, which is to notify the IRS that you want to recognize the income associated with your option when you buy it as opposed to the default which is when it vests. Why doesn't everyone file their 83(b)? Clearly, the risk here is too complicated for many to understand and it's a very unusual situation to arise. Here is the story of how our CFO(!) at that company ran into this exact problem to the tune of $316,040 tax liability for shares he bought with money borrowed from the company(!): https://www.washingtonpost.com/archive/business/2000/07/02/keep-the-tax-man-away-from-your-stock-option-gains/7070006d-f6ee-47c1-97d9-ae98c540e2c7/ https://www.washingtonpost.com/archive/business/2000/07/02/k... Some references: https://www.nceo.org/articles/stock-options-alternative-minimum-tax-amt https://www.nceo.org/articles/stock-options-alternative-mini... https://blog.wealthfront.com/always-file-your-83b/ https://blog.wealthfront.com/always-file-your-83b/