This expression denotes what happens when you have ordinary income or short-term capital gain from a transaction that later turns into a loss which you cannot deduct against the gain (or at least not fully). With stock compensation, this can occur when you exercise nonqualified stock options (NQSOs), triggering ordinary income from the spread at exercise, and then sell the stock in the following year at a substantial loss. For details, including the treatment of capital-loss carryforwards, see NQSOs: Taxes and NQSOs: Taxes Advanced.