- 10 -
If the amount realized on a disqualified disposition is less than
the FMV at the date of exercise, the taxpayer recognizes gain
only to the extent of the sale price over the option price, not
the FMV over the option price at the date of exercise. Sec.
422(c)(2).
Petitioner’s 2000 amended returns reported Veritas stock
sales resulting in qualifying and disqualifying dispositions.
The disqualifying dispositions were the result of selling shares
within 1 year of transfer. Petitioner’s 2001 return and amended
return reported that all Veritas shares sold during the tax year
were qualifying dispositions.
2. The AMT and Its Impact on the Exercise of ISOs
For regular tax purposes, section 421 defers the recognition
of income on the exercise of an ISO until the disposition of the
stock. However, for AMT purposes, section 421 does not apply.
Sec. 56(b)(3). Instead, the exercise of an ISO results in the
recognition of income under section 83. See sec. 56(b)(3);
Speltz v. Commissioner, 124 T.C. 165, 178 (2005), affd. __ F.3d
__ (8th Cir. July 14, 2006); sec. 1.83-7(a), Income Tax Regs.
Consequently, if the stock’s FMV exceeds the option price on the
date of exercise, a taxpayer recognizes ordinary income for AMT
purposes in the year an ISO is exercised. Secs. 55(b)(2),
56(b)(3), 83(a); Tanner v. Commissioner, 117 T.C. 237, 242
(2001), affd. 65 Fed. Appx. 508 (5th Cir. 2003).
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011