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year 2001 instead of tax year 2000. Taxpayers received
stock pursuant to IRC Sec. 422 through the exercise of
an * * * [ISO] in tax year 2000, and initially treated
the stock as an AMT preference item in tax year 2000.
However, the stock contained a substantial restriction
of forfeiture under IRC Sec. 83(c)(1); therefore, the
stock vested for AMT preference purposes when the
restriction lapsed in tax year 2001. Taxpayers have
filed an amended return for 2000 reflecting this
change.
* * * * * * *
In taxpayers’ case, they exercised an ISO under
IRC Sec. 422. To qualify for the capital gain benefits
provided by the statute, taxpayers were required to
hold the stock for at least 12 months. This 12-month
restriction constitutes a substantial risk of
forfeiture since rights in property were conditioned
upon the occurrence of a specified event (the 12-month
holding period) related to the transfer, and the
failure to hold the stock for 12 months causes a
substantial forfeiture (the loss of capital gain
benefits under IRC Sec. 422).
When stock is subject to a substantial risk of
forfeiture as defined in IRC Sec. 83, the date for the
calculation of the AMT preference and for inclusion
thereof in AMT is the date the restrictions lapse. The
12-month restriction lapsed in 2001 and the value of
the stock on the date the restriction lapsed will be
used for AMT purposes.
The liability shown on petitioners’ 2000 return filed in
April 2001 was assessed based on petitioners’ reporting. The IRS
accepted petitioners’ amended return for 2001 and made a second
assessment against petitioners in the amount of $578,052 on
September 29, 2003. The IRS did not accept petitioners’ amended
return for 2000. On November 10, 2003, the IRS sent petitioners
a Notice of Intent to Levy for 2001. On the same date, the IRS
sent petitioners a collection letter showing the unpaid balance
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