Printer Friendly

Sec. 83(b) election can be made for AMT purposes on ISO exercise.

For the first time, the Service, in an information letter (INFO 2001-0224), publicly agreed that a Sec. 83(b) election can be made for alternative minimum tax (AMT) purposes on the exercise of an incentive stock option (ISO). The letter further indicated that a Sec. 83(b) election may be made only for AMT purposes. The IRS also concluded that it would deny an individual's request for revocation of his Sec. 83(b) election if a letter ruling request were submitted.

In the facts of the letter, the individual had exercised his ISOs early, believing that the early exercise and the Sec. 83(b) election had to be done as a single transaction. The individual received information from his company and consulted with an accountant; however, in deciding to make the election and exercise his stock options, he never considered the possibility that he might be terminated before vesting.

The Service noted that, for AMT purposes, a Sec. 83(b) election may be made for substantially nonvested ISO stock, and can be revoked only with the IRS's consent. The Service will grant consent only when there is a mistake of fact as to the underlying transaction. Because the individual's election was not based on a mistake of fact, the IRS concluded that if it formally ruled on his request for revocation of his Sec. 83(b) election, it would be denied.

Although this appears to be the first time the Service publicly stated that an individual could make a Sec. 83(b) election for AMT purposes on the exercise of an ISO, practitioners have taken that position for years. The instructions to Form 6251, Alternative Minimum Tax--Individuals, also appear to support this position. It now seems clear that practitioners will have the IRS's support as well.

Note: The information letter also indicates the Service's view that a Sec. 83(b) election cannot be made for regular tax purposes on the exercise of an ISO. The letter points to the statutory language of Sec. 83, which specifically provides that the exercise of an ISO is not subject to Sec. 83.

COPYRIGHT 2002 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2002, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:alternative minimum tax, incentive stock options
Author:Kautter, David J.
Publication:The Tax Adviser
Geographic Code:1USA
Date:Jan 1, 2002
Previous Article:Bank must capitalize cost of acquiring credit card receivables.
Next Article:Sec. 121 gain exclusion on sale of principal residence cannot be marked to market.

Related Articles
Reducing corporate AMT on an employee's stock option exercise.
The AMT trap.
ISOs and AMT traps.
ISOs and the AMT.
Planning for an AMTNOL when ISO exercise price exceeds current market value.
Income from ISO exercise includible in AMTI on transfer of purchased shares.
Tax planning after AMT reform.
Stock options and AMT: tax court says "no hardship".
AMT for individuals: some planning for individual taxpayers.
ISOs and AMT: improving the odds when gambling with the IRS.

Terms of use | Privacy policy | Copyright © 2020 Farlex, Inc. | Feedback | For webmasters