ISO - Tax implications upon exit?

Question

Dear Guru(s),

What are the tax implications of Incentive Stock Options (ISOs) upon an exit via buy out.

It is rumored that even if one does not exercise the options, s/he'll have to pay the taxes on ISOs as if they were regular capital gains. The hiccup is that the acquiring entity will provide their ISOs with restriction on disposition. SO in short, the ISOs will be swapped, but employees have to taxes on them without actually having any gain.

Please guide...

Answer 1

There are no tax consequences until you exercise the option. Period. Don't put any stock in rumors -- pun intended!