-6-
an income base broader than that applicable for regular tax
purposes. Allen v. Commissioner, 118 T.C. 1, 5 (2002).
AMTI is defined as the taxable income of a taxpayer
determined with adjustments provided in sections 56 and 58, and
increased by items of tax preference described in section 57.
Sec. 55(b)(2); Merlo v. Commissioner, 126 T.C. 205, 209 (2006),
affd. F.3d (5th Cir., July 17, 2007); Allen v.
Commissioner, supra at 5. Pertinent to this case, for purposes
of computing a taxpayer’s AMTI, section 56(b)(3) provides that
section 421 shall not apply to the transfer of stock acquired
pursuant to the exercise of an ISO. Therefore, the spread
between the exercise price and the fair market value of the stock
on the date of exercise is treated as an item of adjustment and
is included in AMTI.5 Sec 83(a); Tanner v. Commissioner, 117
T.C. 237, 242 (2001), affd. 65 Fed. Appx. 508 (5th Cir. 2003);
sec. 1.83-7(a), Income Tax Regs.
As a result of these differing treatments, a taxpayer
subject to the AMT has two different bases in the shares of stock
he received upon exercising the ISO: a regular basis and an
adjusted AMT basis. Merlo v. Commissioner, supra at 209; Spitz
v. Commissioner, T.C. Memo. 2006-168. The taxpayer’s regular
basis is the exercise price. See sec. 1012. The adjusted AMT
5If the taxpayer’s rights in the shares are subject to a
substantial risk of forfeiture or not transferable, income is not
recognized at the time of exercise. Sec. 83(a).
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