Can I eliminate AMT by exchanging shares?

December 8, 2003

Subject: 1036 exchange, ISO’s and associated AMT
Date:   12 Nov 2003
From:   James

I have an additional question with regards to your response that “the rules are the same with respect to the AMT whether you pay cash for your shares when exercising the options or exchange shares” in the question from M on 10/05/1998: “Does an exchange of company shares when exercising an ISO change the AMT result?”, and that question is what code section, rule, ruling, treasury regulation, court case, etc. can be used to substantiate your response? I can’t seem to find anything relevant that can be used to back up your answer to this question.

Thank you for your time.



Date:  24 Nov 2003

Hello James,

The AMT adjustment reported when the option price is paid by a swap of previously-owned shares of the same stock is the same as when the option price is paid using cash.

The explanation/authority is the AMT adjustment is determined under the same rules that usually apply to non-qualified stock options. (IRC § 56(b)(3)). The rules that apply to non- qualified options are explained at Revenue Ruling 80-244.

Good luck!

Mike Gray

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

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