In 2009, Z received non-qualified stock options as part of her compensation from U Corporation.When granted, the options had no ascertainable value.In 2012, Z exercised the options and purchased 1,000 shares of U stock, market value $100 per share, for the option price of $70 per share.Accordingly,

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When non-qualified stock options are exercised, the difference between the market value of the shares at the time of exercise and the option price paid for the shares is recognized as ordinary income. In this case, Z must recognize $30,000 ($100,000 market value - $70,000 option price) in ordinary income in 2012.

In 2009, Z Received Non-Qualified Stock Options as Part of Her