>... demand tax withholding on the shares, valued at fair market value ... Income tax is only due on the portion of the asset that is not subject to a "substan

>... demand tax withholding on the shares, valued at fair market value ... Income tax is only due on the portion of the asset that is not subject to a "substantial risk of forfeiture". Thus a letter claiming certainty of instant forfeiture cannot also claim income tax. (FYI, other limits to property rights, such as a lock-up agreement after an IPO, are not considered a forfeiture.) So why did they lie to scare you out of doing something that would have been pointless? Because if they had been forced to buy back the stock at the exercise price, they would have had to pay income tax on the difference from the fair market value.