What happens when the holding period isn’t met and AMT isn’t reported?

February 9, 2000

Subject:   Re: Incentive Stock Options
Date:   Fri, 3 Dec 1999
From:   Anonymous

Thanks – great article. One question. If taxpayer exercises ISO in one year and sells in next year but before 12 month holding period is met- what happens re AMT?

Second question. They didn’t report the AMT in year of exercise- what to do.



Date:   20 Dec 1999

Question 1 – This ordinary income is subtracted at the incentive stock option line on Form 6251. On the regular tax Schedule D, the tax basis for the stock sale equals the sales price for the AMT Schedule D and the tax basis for the stock sale equals the fair market value on the date of exercise. Enter the difference on the gain or loss line of Form 6251. Some minimum tax credit should be allowed in the year of sale.

Question 2 – If the statute of limitations is open, the taxpayer should file an amended return and pay the AMT. If the statute of limitations is closed, we believe the taxpayer should not claim the basis adjustment for AMT. Consult with a tax advisor on this relating to your personal situation and relating to whether your statute of limitations is open.

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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