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Subject:   Redux: AMT preference on shares in blackout period
Date:   Tue, 31 Oct 2000
From:   Alson

Mr. Gray,

You answered a question concerning the AMT preference on stock in its blackout period for Stephen on Jan 2, 2000... This is probably the millionth time you've been asked this question.

I am presently in the same situation as Stephen was in and have been investigating this matter a little bit. Your answer to his question states that the AMT preference is calculated on the FMV on the date of exercise unless the stock is not transferrable AND subject to substantial risk. On the other hand, the instructions for Form 6251 state:

"you generally must include on line 10...:

The fair market value of the stock acquired through exercise of the option (determined without regard to any lapse restriction) when your rights in the acquired stock first become transferable or when these rights are no longer subject to a substantial risk of forfeiture."

I don't know what a lapse restriction is. Is that a black out period? I exercised options in a company that went public in August, 2000. There is a lock out on the sale of stock until Jan 28, 2001.

Alson

Answer

Date:   Mon, 13 Nov 2000

Hello Alson,

The blackout period is a lapse restriction.

The main transactions where the recognition of tax preference is postponed are when there is an early exercise of an unvested stock option or when the Securities Act Rule 16(b) applies for a corporate insider.

I hope this helps!

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options - Executive Tax and Financial Planning Strategies.

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.