[WalterBright]

A friend of mine, a few years ago, had his stock options vest. He didn't sell the stocks. The stocks tanked a few months later. The IRS said he owed income tax on the value of the stocks when they vested.

He owed more tax than his net worth, lost his house, everything, and wound up in a trailer.

He never saw the money he was taxed on.

> bad faith arguments

A person's net worth can have wild gyrations on a daily basis. It's not unusual for a stock to move 10% in a few hours. MSFT dropped something like a third of its value last year. What something is "worth" is an utterly arbitrary notion, and basing taxes on that is inevitably unfair an inequitable. (A lot of effort and handwaving is done by accountants trying to guess at what something is "worth".) Heck, what is your house "worth"? Do you agree with the tax assessor? I once told the assessor that if he believed my house was worth what he assessed it at, I'd sell it to him at a 10% discount and he can flip it for what he thought it was worth. He wouldn't take the deal.

With taxes on income, that is fairly well understood and can be accounted for to the dollar.

[greedo]

So your friend had a large taxable event occur, ignored any advice that such tax event would persist over the tax year, and failed to act at any time to address his tax shortfall. Sounds like he had a shit tax/financial advisor. And to consume all of his net worth etc, the number of options that vested must have been quite large.

Not going to be sympathetic to someone YOLO'ing their compensation/taxes.

[WalterBright]

He didn't know about that tax rule, which was enacted that year. A lot of people were shattered by it.

[greedo]

I think he must have relayed the tale to you incorrectly. Stock options aren't taxed until you exercise them. Been this way since 1969.

Restricted stock is taxed at vesting, unless you choose to be taxed when they're granted to you. Ditto since 1969.

RSUs are taxed at vesting/settlement as ordinary income. This was pretty much the case since 1969 as well, but fully confirmed in 2009.