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in excess of $75,000. By 2004, petitioner’s wages were
approximately $90,000 per year. As part of his compensation at
McLeod, petitioner received ISOs for acquisition of McLeod stock.
During the year 2000, petitioner exercised certain of the
ISOs that he previously had received. On petitioners’ Form 1040,
U.S. Individual Income Tax Return, for 2000, petitioners
reported, for purposes of the AMT, those ISOs as resulting in
“excess of AMT income over regular tax income” of $711,118. On
their Form 1040, petitioners reported that their “regular”
adjusted gross income was $142,070. Their taxable income was
$105,461, and their “regular” tax was $18,678. Petitioners
reported AMT of $206,191 for a total tax liability of $224,869.
After application of Federal income tax withheld, the balance
owed on petitioners’ tax liability for 2000 was $210,065.
Petitioners also filed a 2000 Iowa Individual Income Tax Long
Form, IA 1040, on which they reported Iowa minimum tax of $46,792
and a total tax liability of $56,769.
The value of petitioners’ McLeod stock dropped
precipitously. On their tax return for 2000, petitioners
reported that they sold 200 shares of McLeod stock on January 14
for a total of $14,011 and 500 shares of McLeod stock on March 10
for a total of $52,282. On their tax return for 2002,
petitioners reported that they sold 2,070 shares of McLeod stock
on December 30 for a total of $1,647.
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