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Petitioner made no remittance with the return, and except for a
$300 credit on December 3, 2001, petitioner made no additional
payments.
Respondent accepted petitioner’s return as filed and in due
course assessed the $786,547 tax due shown on the return. In
addition, respondent assessed a $174,480.07 late filing penalty
under section 6651(a)(1), and a $31,018.68 late payment penalty
under section 6651(a)(2). Subsequently, respondent abated
$101,250 of the late filing penalty, and $13,122.50 of the late
payment penalty.
Petitioner was employed as an engineer by PMC-Sierra (PMCS)
during 2000. During the year, petitioner exercised several
incentive stock options (ISOs) covering PMCS shares having a
value of $2,910,251 on the exercise date. Petitioner’s total
exercise price under all the ISOs was $183,263, so that the value
of the shares on the date of exercise exceeded the exercise price
by $2,726,988.
Petitioner’s exercise of the ISOs encompassed an attendant
“ISO spread”, described below, within the purview of the AMT
system. See sec. 56(b)(3). The beneficial provisions of
sections 421(a) and 83(e) are superseded for purposes of
computing income adjustments in the AMT regime. As a result, the
pertinent AMT income recognition event for incentive stock option
transactions occurs upon the holder’s exercise of the option.
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