The one question in my mind the whole time which the article doesn't answer, is if you exercise options and buy unregistered stock with has a current FMV in excess of the strike price--a taxable gain--but then within the 5 year deferral period the company dissolves in a puff of smoke, making the stock you hold actually worthless... do you still owe the tax?

Seems to me that a key advantage of the deferral period would be if it allowed one to net out the true capital gain/loss if you actually sold or otherwise disposed of (e.g. it became worthless) the stock within the deferral period.

What is the rationale for adding another rule to the tax game? It seems complicated enough already, and I thought we were trying to simplify it?

On the surface, this seems like a welcome addition. Given how long companies are waiting to IPO these days, 5 years may not be enough though...