When you report the exercise and sale of (some or all) shares of a Non-Qualified Stock Option (NQSO), I recommend that you do NOT indicate in the program that it is Company Stock. Simply report the sale as it is reported on the Form 1099-B (with the incorrect cost basis), and then adjust the cost basis to include the amount that was taxed. Your adjusted cost basis will be the same amount as the value of the stock at the time it was exercised. For example, if you exercised 100 shares of XYZ stock for $25 when the stock was trading at $75, you would adjust your cost basis to $75 per share. You paid $25 per share, you were taxed on the bargain element of $50 per share for a cost basis of $75 per share. You do not need to go through the Company Stock questions and indicate it was a NQSO stock sale. You only need to report the correct acquisition date, sale date, proceeds, and cost basis. Because the 1099-B cost basis is incorrect, you have to report what is on the 1099-B, and then adjust it. And you definitely don't need to override anything. You will be able to e-file your return.
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