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On December 21, 2000, petitioner exercised an option to
purchase 46,125 shares of Exodus common stock at 20 cents per
share, for a total exercise price of $9,225. The price of the
optioned stock on the NASDAQ on December 21, 2000, was $23.3125
per share, for a total fair market value of $1,075,289 on the
date of exercise. Petitioner was not a dealer in securities but
instead was acting as an investor when he exercised the ISOs.
Exodus filed for bankruptcy on September 26, 2001. In a
press release dated November 21, 2001, Exodus announced that the
company’s common stock had no value. Petitioner’s shares of
Exodus stock were worthless as a result of Exodus’s bankruptcy.
Petitioner timely filed a Federal income tax return for
2000. On the return, petitioner reported $248,585 in wages, $432
in taxable interest, $11,311 in dividends, and $319,614 in
capital gain, for total income of $579,942. Petitioner claimed
itemized deductions of $31,213 and reported taxable income of
$548,729 and regular tax liability of $134,455. Petitioner also
reported alternative minimum tax (AMT) liability of $116,973, for
a total tax of $251,428.
Attached to petitioner’s 2000 tax return was Form 6251,
Alternative Minimum Tax--Individuals. On line 10, petitioner
reported excess AMTI over regular tax income of $452,025 as a
result of his exercise of the Exodus ISOs. Instead of using the
spread between the exercise price and the fair market value of
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