- 18 - Section 83(c) contains special rules related to recognition of income under section 83(a). Section 83(c)(3) provides that a taxpayer’s rights in property (stock) are subject to a substantial risk of forfeiture and are not transferable so long as the sale of the stock at a profit could subject the taxpayer to suit under section 16(b) of the Exchange Act. 3. AMT Impact on Basis As a result of the unique treatment of the exercise of ISOs under the AMT regime, a taxpayer normally will have two different bases in the same shares of stock. The taxpayer’s regular tax basis is 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.” In other words, a taxpayer’s adjusted AMT basis equals the exercise or cost basis in the shares increased by the amount of income included in AMTI. See secs. 55(b)(2), 56(b)(3), 83(a). The following example illustrates the general operation of the ISO basis rules. Assume a taxpayer is granted an ISO giving him the right to purchase 100 shares of ABC, Inc., common stock at $1 per share. The taxpayer exercises the ISO at a time when ABC, Inc. common stock is trading at $10 per share and the taxpayer’s rights in such shares are freely transferrable. UnderPage: Previous 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Next
Last modified: May 25, 2011