You eliminate the "double tax" issue by using the correct basis when you report the sale. The correct basis is not the out of pocket cost you paid to acquire the stock you sold. The "spread" between the cost of exercise and the lower of the fair market value at exercise of the selling price gets added to your out of pocket cost. Assuming you sold at a per share price higher than the per share "fair market value" at exercise, that per share "fair market value" is your per share cost basis.
Enter the sale exactly as it reads, wrong basis and all. Then click on the "I'll enter additional info on my own" blue button. On the next page enter the correct basis in the "Corrected cost basis" box. The correct basis is (number of shares sold) x (correct per share basis, which includes the compensation per share)
TurboTax will report the sale on Form 8949 "as reported by the broker" but will put an adjustment figure into column (g) of the Form, a code "B" into column (f) of the Form, and the correct amount of gain or loss which includes the adjustment.
Tom Young
