[farmer_giles_of_ham]

Lawdog:

Mr. Smith was an EMPLOYEE. The question for decision was whether this option purchase of stock was taxable income..."Any economic or financial benefit conferred on the EMPLOYEE." ...the stock option purchase was taxable income to Mr. Smith in the difference between the price he paid and the market price, which was higher.

Yep, EMPLOYEES who EARN, BENEFIT, and GAIN have
taxable income. So what? We already knew that!

question for decision is... the difference between the market value and the option price of the stock

And when the difference is ZERO...no GAIN, or BENEFIT, even for EMPLOYEES.

It is noteworthy that "capital gains tax" only applies to "U.S. persons"- it's the one kind of "income" that even within the special world of "Internal/Inland Revenue" needs a very particular hook to be invoked.

Because, mathematically, there is never any gain, anywhere- for every action there is an equal and opposite reaction, so the universe is always in balance. It takes a special regime to see it otherwise, from the point of a legal fiction. ("gross income")