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Subject:   Exercising Unvested ISO's & Filing 83(b)
Date:   Thu, 1 Jun 2000
From:   Gaye

I understand that exercising unvested ISO's and filing a Sec 83(b) results in recognition of taxable income on the date of option exercise for purposes of AMT. So, on the date of exercise, you file an 83(b) and pay AMT on the gain (exercise price is $1. FMV on date of exercise is $3, you pay AMT on $2). Now, when the share vests and the FMV is $XX, what happens for AMT?

Gaye

Answer

Hello Gaye,

When you file a Section 83(b) election when making an early exercise of an ISO, it "closes" the transaction for AMT reporting as of the date of exercise. That means there will be no consequence when the share vests. Therefore, the answer to your question is, "nothing!"

Good luck!

Mike Gray

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IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.