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taxpayer’s rights in the shares are transferable or not subject
to a substantial risk of forfeiture. Sec. 83(a); Tanner v.
Commissioner, 117 T.C. 237, 242 (2001), affd. 65 Fed. Appx. 508
(5th Cir. 2003); sec. 1.83-7(a), Income Tax Regs. Pursuant to
sections 55(b)(2), 56(b)(3), and 83(a), the taxpayer is required
to include this income in his AMTI.
As a result of the AMT treatment of the exercise of ISOs,
the taxpayer can have two different bases in the same shares of
stock. The taxpayer’s regular tax basis will be the exercise
price, or cost basis. See sec. 1012. However, for AMT purposes,
section 56(b)(3) provides that the adjusted basis of any stock
acquired by the exercise of an ISO “shall be determined on the
basis of the treatment prescribed by this paragraph.” Thus, the
taxpayer will increase his adjusted AMT basis by the amount of
income included in his AMTI. See secs. 55(b)(2), 56(b)(3),
83(a).
The parties stipulate that petitioner’s stock options
qualify as ISOs under section 422. For regular tax purposes,
section 421(a) allows petitioner to defer recognition of income
until he later sells the stock. Under section 1012, petitioner’s
regular tax basis in the shares of Exodus stock is the exercise
price, $9,225.5
5 To avoid confusion between petitioner’s different bases,
we shall refer to petitioner’s basis for regular tax purposes as
(continued...)
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