-9-
items described in part VI. Thus, petitioners must calculate
their 2001 AMTI by adjusting their 2001 taxable income to reflect
the mandate of section 56(b)(3) that their AMTI be computed using
their AMT adjusted basis in the stock acquired through the
exercise of petitioner’s ISO rather than their regular tax
adjusted basis in that stock. In other words, given that
petitioners computed their 2001 taxable income by factoring in a
$3,000 capital loss, petitioners’ adjustment under section
56(b)(3) must reflect the substitution of that $3,000 capital
loss with the $3,000 allowable portion of their 2001 AMT capital
loss (discussed below).
Petitioners calculate their 2001 AMTI by reducing their
taxable income by the $148,461 regular tax capital gain
attributable to petitioner’s ISO (rather than the $3,000 capital
loss factored into the computation of their 2001 taxable income).
We do not do similarly. In addition to the sales underlying the
$148,461 capital gain, petitioners had other sales of capital
assets during 2001. Although those other sales were unrelated to
petitioner’s ISO, they are nevertheless sales that entered into
the calculation of petitioners’ 2001 regular tax capital loss
and, hence, must necessarily enter into the calculation of
petitioners’ adjustment under section 56(b)(3). Considering all
of the sales together, petitioner realized a regular tax capital
loss of $5,164 (the sum of the non-ISO losses of $153,625 and the
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