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Petitioner Jeffrey Chou (Mr. Chou) has never abused Mrs. Chou at
any time.
In 1996, Mr. Chou began employment as a hardware engineer
for Granite Systems (Granite). As part of his employment
package, Mr. Chou received 80,000 ISOs with an exercise price of
$0.05 per share. The ISOs vested over a 4-year period. Several
weeks after Mr. Chou began his employment, Granite merged with
Cisco Systems (Cisco). Cisco converted Mr. Chou’s Granite ISOs
into Cisco ISOs, and, through stock splits, Mr. Chou’s ISOs grew
to approximately 153,000 over the next several years. Mr. Chou
received the Cisco ISOs in connection with his status as a Cisco
employee.
In 2000, Mr. Chou exercised 106,560 of his Cisco ISOs when
the fair market value of the Cisco stock had an average price of
$64.69 per share. Mr. Chou did not sell any of the Cisco shares
acquired by him through the exercise of the ISOs during 2000. By
the end of 2000, the price per share of Cisco stock was
approximately $40.
In March 2001, petitioners had their tax return prepared and
were told that they owed $1,962,365 in tentative AMT because of
the exercise of Mr. Chou’s stock options. By April 2001, the
price per share of Cisco stock was $17.64.
Petitioners filed a joint Form 1040, U.S. Individual Income
Tax Return, for 2000 in April 2001. On the line for “amount you
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Last modified: November 10, 2007