Mark Spitz - Page 8

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          response to respondent’s November 29, 2004, notice of deficiency            
          for the years at issue, petitioner timely filed a petition with             
          the Court on March 2, 2005.  On April 15, 2005, the Court of                
          Federal Claims entered an order suspending Spitz v. United                  
          States, supra, pending the outcome of this case.                            
                                     Discussion                                       
          A. ISOs and AMT                                                             
               1. ISOs Generally                                                      
               Section 421(a) provides that, if the requirements of section           
          422(a) are met,4 a taxpayer does not recognize income either upon           
          the granting5 of an ISO to the taxpayer or when the stock is                
          transferred6 to the taxpayer upon exercise of an ISO.                       
          Recognition of income is deferred until the disposition of the              
          stock.7  Sec. 421(a); sec. 14a.422A-1, Q&A-1, Temporary Income              
          Tax Regs, 46 Fed. Reg. 61840 (Dec. 21, 1981).  Gain on the sale             

               4 At all times from the date of granting the option until 3            
          months before the date of exercise, the option holder must be an            
          employee of the company granting the option.  Sec. 422(a)(2).               
               5 The date on which an ISO is granted is the date on which             
          all corporate action necessary for the grant of the ISO is                  
          completed.  Sec. 1.421-7(c)(1), Income Tax Regs.                            
               6 For purposes of secs. 421 through 425, the term “transfer”           
          means the transfer of ownership or substantially all rights of              
          ownership of a share of stock to an individual pursuant to his              
          exercise of a statutory option.  Sec. 1.421-7(g), Income Tax                
          Regs.                                                                       
               7 A disposition of ISO stock generally means any sale,                 
          exchange, or gift of, or transfer of legal title to, the stock.             
          Sec. 424(c)(1).                                                             





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