Which of the following statements regarding nonqualified stock options (NSOs) is(are) CORRECT?
I. The exercise of NSOs does not create taxable income.
II. The NSO is taxable to the recipient at the time of exercise to the extent of the difference between the fair market value of the stock and the exercise price.
A) Neither I nor II.
B) II only.
C) I only.
D) Both I and II.
Answer: B) II only.