-7-
basis is the exercise price increased by the amount of income
included in AMTI by reason of the exercise of ISOs. Sec.
56(b)(3); Merlo v. Commissioner, supra at 209-210.
With respect to the 30,297 Veritas shares sold in 2001,
petitioners had a regular tax basis of $127,920, the exercise
price. Petitioners had an adjusted AMT basis of $4,472,288,
consisting of the $127,920 exercise price and $4,344,368 of gain
included in AMTI by reason of the exercise of the ISOs in the
year exercised.6
B. Incentive Stock Options and the Alternative Tax Net
Operating Loss
Generally, a taxpayer may carry back a net operating loss
(NOL) to the 2 taxable years preceding the loss, then forward to
each of the 20 taxable years following the loss. Sec.
172(b)(1)(A). For AMT purposes, taxpayers take an ATNOL
deduction in lieu of an NOL deduction. Sec. 56(a)(4). An ATNOL
deduction is defined as “the net operating loss deduction
allowable for the taxable year under section 172,” subject to
exceptions and adjustments under section 56(d). Sec. 56(d)(1).
The NOL deduction under section 172 is defined as “the excess of
6Petitioners sold the 30,297 shares of Veritas stock for
$1,688,875. Therefore, petitioners realized regular tax capital
gain of $1,560,955 and an AMT capital loss of $2,783,413.
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