-5-
Petitioners attempted to file three other amended returns.
On April 15, 2003, petitioners submitted their second amended
2000 return, and second amended 2001 return, which were both
designated “Notice of protective/incomplete claim.” Respondent
did not process these returns. On January 26, 2004, petitioners
submitted their third amended 2000 return, which respondent did
not process.
On March 14, 2005, respondent issued a notice of deficiency
to petitioners with respect to 2000 and 2001. With respect to
2000, respondent denied petitioners’ claimed ATNOL deduction,
carried back from 2001, of $1,909,562, resulting in a deficiency
of $491,829. With respect to 2001, respondent reduced
petitioners’ prior year minimum tax credit from $414,212 to
$213,748, resulting in a deficiency of $178,664.
Discussion
A. The Alternative Minimum Tax and Incentive Stock Options
Generally, a taxpayer is not required to recognize income
upon the grant or exercise of an ISO. Sec. 421(a). Although a
taxpayer generally defers tax liability resulting from the
exercise of ISOs until the taxpayer later sells the stock, the
taxpayer may nevertheless incur AMT liability. Secs. 56(b)(3),
421(a). This is because the AMT, a tax imposed in addition to
all other taxes, is determined with respect to a taxpayer’s AMTI,
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