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[[I spent $1000 for options on CPQ in tax year 1998, and when the option came
due, it was "in the money", so I purchased the underlying stock (again in 1998). I
still hold the stock now. Is there any way I can take credit for the $1000 spent
to purchase the option in 1998? ]]

I generally don't deal with option question in this forum, Megaman, since options don't fall under the Foolish Filosophy. Options are discussed in much greater detail on many other tax sites. You might want to check 'em out. One of the best is the Fairmark tax site (http://www.fairmark.com).

But, as you guess, the answer to your question is a resounding nope.

[[I am assuming that the answer is no, and that
when I eventually sell the underlying stock, that the my initial purchase price of
the stock can reflect the $1000 spent for the purchase of the option for capital
gains determination.]]

Right you are. The option expense adds to the basis of the shares.

[[ Is that the case, or can I somehow count the option as a
short-term capital loss (after all I did not sell the option back at a profit). Wishful
thinking, I presume....]]

Right...sorry. You would have had a capital loss if the call would have gone unexpired. But you bought the underlying stock, so you have a basis adjustment. Sorry for the bad news.

TMF Taxes
Roy

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