How I explained Tax Implications of exercising stock options to a friend

A new car! Think rod roddy's voice from the price is right. You just won a $20,000 new car. This corporation, The Price Is Right, Inc. is going to pay you a car worth $20,000 in exchange for filming you jumping up and down. You get the car. They get the video footage. But that year you'll need a 1099 tax form showing $20,000 extra income from this corporation you did work for. That free new car, you have to pay $5,000 for it. Cough it up. And if you don't have the cash. Well I heard you have a $20,000 asset you could sell. Sell it and pay the IRS $5,000 from the sale. Now let's say TPIR, Inc. gave you $20,000 shares of stock in exchange for $200 cash. The stock is worth $2,000,000 but they are letting you buy it for $200. At tax time, you'll get another 1099 like you did for the car. This time it says TPIR, Inc. paid you $1,999,800 and you owe $500,000 in taxes on that income. And if you don't have the cash. Well I heard you have a $2,000,000 asset you could sell. Sell it and pay the IRS $500,000 from the sale. Oh you can't sell it because it's not a public company? Too bad. IRS says find the money somehow because you owe it.