It's a little complicated, but it can be very helpful. The basis isn't zero either, it's what you paid to exercise the option. The tax due at time of exercise is $0 because the fair market value is the same as what you paid (assuming you exercise either at the time of the grant, or at least before the next evaluation of the FMV). The benefit is if/when you sell, if you've held everything for the right period, you can pay long term capital gains tax on the gain, instead of ordinary income like you would if you held onto the option as an option.