[delinka]

You owe tax on an exercise below market value, whether you can sell or not. This is why you get the official 409a valuation from the CFO before you file your taxes. The 409a is prepared by the company's CFO, accountants, lawyers, and somehow in conjunction with the IRS (or by IRS rules?) and is the valuation that you use to compute whether you owe tax on an exercise or not.

>The only thing that accurately values your shares is a sale.

Accurately? Perhaps. But until that sale happens, you can still be on the hook for more tax.

[jacquesm]

Oh absolutely. People tend to forget that options and illiquid stock still count for the taxman.