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Subject:   AMT for exercised shares that has restrictions on transfer
Date:   26 Mar 2008
From:   Diana

Dear Mike,

The company for which I hold ISOs was delisted from NASDAQ in 2005 because the company did not file its 10K with the SEC in 2004. Unless the company can file its delinquent financial reports, we will not be able to register shares with the SEC to eliminate the Restriction on Transfer for exercised ISO shares.

If I exercise ISOs, do I have to pay AMT when I file 2008 income tax returns?

Thank you in advance for your help!
Diana

Answer

Date:   10 Apr 2008

Hello Diana,

If the fair market value of the stock on the date of exercise exceeds the option price, the additional AMT income must be reported on Form 6251.

However, since the shares can’t be sold on an exchange, the fair market value of the stock should be reduced for lack of liquidity and lack of control. Your company should have a valuation study done to determine the fair market value, including these valuation reductions.

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.