Assume that on January 1, year 1, DEF, Inc. issued 6,000 stock options with an estimated value of $8 per option. Each option entitles the owner to purchase one share of DEF stock for $20 a share (the per share price of DEF stock on January 1, year 1 when the options were granted). The options vest at the end of the day on December 31, year 2. All 6,000 stock options were exercised in year 3 when the DEF stock was valued at $26 per share. Identify DEFs year 1, 2, and 3 tax deductions and book-tax differences (indicate whether permanent and/or temporary) associated with the stock options under the following alternative scenarios:

a. The stock options are incentive stock options.

b. The stock options are nonqualified stock options.