Abstract: This paper reconsiders the tax policy question of whether gains and losses on options on the issuer's stock should be excluded from the corporate tax base. The principal conclusions are that nonrecognition provisions of current law are problematic, and that the appropriate legislative response depends on a range of considerations, including the function of the corporate tax and the appropriate treatment of employee stock options. Part I briefly reviews the principal provisions of current law and identifies the role of the corporate tax that provides the tentative normative perspective of the paper. Part II illustrates the inconsistent taxation under present law of options and certain substantially equivalent transactions. Part III examines some combinations of options and substantially equivalent transactions. Part IV considers alternatives to the 1984 legislation. Part V provides a summary of conclusions.