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exercise. Absent a section 83(b) election, petitioner would not
recognize as AMTI, $1,496,034,12 the same spread for the
nonvested shares because those shares were subject to a
substantial risk of forfeiture; i.e., Ariba’s right to repurchase
the nonvested shares.
Section 83(b) allows a taxpayer to elect to include in
income in the year of receipt the excess of the value of the
stock subject to a substantial risk of forfeiture (determined
without regard to any restriction other than a nonlapse
restriction)13 over any amount paid for the stock. Although a
taxpayer who makes a section 83(b) election after exercising ISOs
will not recognize income for regular tax purposes (because
section 421 applies to the transfer), the taxpayer will recognize
ordinary income for AMT purposes. If petitioner’s section 83(b)
election was validly made, petitioner would recognize as AMTI,
12 The FMV of the nonvested shares on the date of exercise
was $1,496,034 (14,667 (nonvested shares on date of exercise) x
$102 (FMV per share of stock) = $1,496,034 (total FMV)).
The vested shares exercise price on the date of exercise was
$1,376 (14,667 (vested shares on date of exercise) x $0.0938
(exercise price per share) = $1,376 (total exercise price of
vested shares)).
The AMTI recognized from exercising the vested shares was
$1,494,658 ($1,496,034 (total FMV of the vested shares) - $1,376
total exercise price of the vested shares) = $1,494,658)).
13 A nonlapse restriction is a permanent limitation on the
transferability of property. Sec. 1.83-3(h) and (i), Income Tax
Regs.
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