Evan and Carol Marcus - Page 7




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          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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