As this provision only triggers on exercise, not sale, there seems no way for an ultimate loss to balance out for the company. And since an employee would never exercise an underwater option, there's never a 'negative' payroll expense flowing to the company.
Intentionally overpaying for dead/dying/underwater company options/equity, to create offsetting losses, would save less in gains taxes than the new losses taken on. And, there's no indication a company could deduct investment losses elsewhere against this particular purported 'payroll expense'.
Intentionally overpaying for dead/dying/underwater company options/equity, to create offsetting losses, would save less in gains taxes than the new losses taken on. And, there's no indication a company could deduct investment losses elsewhere against this particular purported 'payroll expense'.