12. Which of the following statements correctly describes the income tax rules for incentive stock options (ISOs)?

(A) When the ISO is granted, the employee has ordinary income equal to the fair market value of the option.

(B) When the ISO is exercised, the employee must report capital gain equal to the fair market value of the stock less the option price.

(C) If the shares are held for 2 years after the option was granted and 1 year after the exercise, the gain from the sale will be taxed as long-term capital gain.

(D) If the employee sells the shares 1 year after the option was granted and 2 years after exercise, the employee will have no taxable income.