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SEC. 56(b). Adjustments Applicable to
Individuals.-- In determining the amount of the
alternative minimum taxable income of any taxpayer
(other than a corporation), the following treatment
shall apply * * *:
* * * * * * *
(3) Treatment of Incentive Stock Options.--
Section 421 shall not apply to the transfer of
stock acquired pursuant to the exercise of an
incentive stock option (as defined in section
422). * * *
Section 421(a) provides in pertinent part:
SEC. 421(a). Effect of Qualifying Transfer.-- If a
share of stock is transferred to an individual in a transfer
in respect of which the requirements of section 422(a) or
423(a) are met--
(1) no income shall result at the time of the
transfer of such share to the individual upon his
exercise of the option with respect to such share;
As stated above, under section 421(a), gain is not
recognized for regular tax purposes on the exercise of an option
that qualifies as an ISO. Therefore, the only adjustment under
section 56(b)(3) is the recognition of gain for AMT purposes when
stock is transferred to an individual upon the exercise of an
ISO. The adjustment is made in the year of exercise. The
statutes do not provide for an adjustment in the year of sale.
To support their position, petitioners cite Staff of the
Joint Committee on Taxation, General Explanation of the Tax
Reform Act of 1986, at 437 (J. Comm. Print 1987), which states:
The structure for the alternative minimum tax on
individuals generally is the same as under prior law,
except that adjustments are made to reflect the fact
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