An employer granting an ISO is not entitled to an income tax deduction with respect to the option on its grant or its exercise.
1 The amount received by the employer as the exercise price will be considered the amount received by the employer for the transfer of the ISO stock.
2 If the employee disposes of the stock prior to the end of the requisite holding period, the employer generally may take a deduction for the amount that the employee recognized as ordinary income in the same year in which the employee recognizes the income.
3