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B. Alternative Minimum Tax
1. In General
The Internal Revenue Code imposes upon taxpayers an AMT in
addition to all other taxes imposed by subtitle A. Sec. 55(a).
Although a taxpayer exercising an ISO may defer recognition of
income for regular tax purposes, the taxpayer nevertheless may
incur AMT liability. See sec. 56(b)(3). The AMT is imposed upon
the taxpayer’s AMTI, which is an income base broader than that
applicable for regular tax purposes. Allen v. Commissioner, 118
T.C. 1, 5 (2002); see also H. Conf. Rept. 99-841 (Vol. II), at
II-249, II-264 (1986), 1986-3 C.B. (Vol. 4) 1, 249, 264. AMTI is
defined as the taxable income of a taxpayer for the taxable year,
determined with adjustments provided in sections 56 and 58, and
increased by the amount of items of tax preference described in
section 57. Sec. 55(b)(2).
For purposes of computing a taxpayer’s AMTI, section
56(b)(3) provides that section 421 shall not apply to the
transfer of stock acquired pursuant to the exercise of an ISO as
defined by section 422. Therefore, under the AMT, the spread
between the exercise price and the fair market value of the
shares of stock on the date an ISO is exercised is treated as an
item of adjustment and is included in the computation of AMTI.
See sec. 56(b)(3); sec. 1.83-7(a), Income Tax Regs.; see also
Speltz v. Commissioner, 124 T.C. 165, 178-179 (2005), affd. 454
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