Also this title is clickbait, no one forced this person to pay anything. Walking away from equity for free is always an option that some people take.
Now - you may very well have to pay Alternative Minimum Tax (AMT), as AMT rolls in some otherwise non-taxable transactions into the calculations, this being one of them.
The real kicker is - let’s say you do pay AMT on the paper gains, and then the stock tanks later - you can’t claim that as a loss on your taxes. You can take a credit for the excess that you paid in AMT, but you can only take that a few thousand dollars at a time. So, OP could be in a situation where the shares eventually sell $0.01 in the money, so they would re-earn their $100k investment, but effectively lose the $200k AMT bill (if that’s accurate).
Additionally - you actually can not negotiate to extend the expiration of your purchase option after you leave, because it’s codified in IRS regulations. Companies CAN choose to let you have longer, but then the options become non-qualified stock options, and lose some of the benefits of ISO’s, primarily the non-taxability of the exercise event.
This would also make every employee into an actual shareholder as of their first vest, and startups really hate having lots of shareholders, because it generates a ton of administrative overhead and paperwork. In fact, if you reach 2000 shareholders, you have to start filing SEC reports as if you’re a public company, which nobody wants to do.
I didn't think about the limits of total shareholders. Doesn't that mean if 2000 employees got made at their employer they could deliberately trigger SEC oversight by exercising the options?
Exercising ISOs does not generate taxable income nor immediate capital gains when the option is exercised, but you will generate capital gains in the future on the difference between the sold price and the strike price when you sell your exercised options. If you are higher income, which is common if you work for a startup on the product and engineering teams, the difference between the strike price and the FMV when exercising the option counts towards AMT calculations.
It's common to pay AMT when exercising ISOs but you do generate AMT credits that can be used in future tax years when your taxable income and capital gains are below the threshold for triggering AMT.
Carta has a great article on ISOs vs NSOs that goes into more detail: https://carta.com/blog/equity-101-exercising-and-taxes/
Some more forward thinking companies (including mine) offer 10 year expiry on options.