According to AVC this language was changed in the final version of the bill, and the bill is now favorable to the interests of VC-backed startups.<p>Nevertheless, taxing options when they vest rather than when exercised (NSO) or on sale of underlying stock (ISO) might not be such a big deal. If this change had been adopted as law, the option-holder could presumably still make an 83(b) election when the option is granted. But if not, then yes, this would be the end of option comp as we know it.<p>But the existing tax code is problematic enough. Ideally we could give startup employees restricted stock grants through all stages (or at least, the early stages) of growth. Instead, b/c of the deemed fair market value of the stock, we have to use options to avoid a phantom tax hit. Option comp leads to a lot of the stories we hear from aggrieved employees and former employees of high-flying startups, whose interests often get lost in the shuffle.<p>What if we could change the code to permit taxing startup restricted stock grants <i>on exit</i> instead of on grant. Define startup restricted stock grant as illiquid private company stock issued as equity compensation to service providers. Here's a compromise -- allow an elective deferral of tax until exit, with the trade-off that stock taxed on exit pursuant to the deferral is taxed as ordinary income. This would solve so many problems, and vastly simplify early-stage equity comp. Alas, our tax code is held hostage to the cat-and-mouse game played with large public companies and PE funds, and efforts to make those people pay more tax end up having tremendous unintended fallout on small private companies.