Same definition as given in Desk side manners, IV
New scenario:
A middle aged executive who is your tax client checks the yes box on your organizer that asks if he exercised any incentive stock options during the year. You ask him how much? You learn the difference between the FMV at the time it was exercised and what he paid was about a $600,000. You calculate his AMT liability to be an additional $168,000. He says, no you don’t understand. He never received anything for the stock…the company just went bankrupt last week and the stock is now worth zero. (Based upon a true life court case, Merlo, 126 T.C. 10) Based on his normal income, it will take at least 10 years of AMT credits before he can re-coop all of the AMT paid on money he never received.
What do you say to him?
New scenario:
A middle aged executive who is your tax client checks the yes box on your organizer that asks if he exercised any incentive stock options during the year. You ask him how much? You learn the difference between the FMV at the time it was exercised and what he paid was about a $600,000. You calculate his AMT liability to be an additional $168,000. He says, no you don’t understand. He never received anything for the stock…the company just went bankrupt last week and the stock is now worth zero. (Based upon a true life court case, Merlo, 126 T.C. 10) Based on his normal income, it will take at least 10 years of AMT credits before he can re-coop all of the AMT paid on money he never received.
What do you say to him?
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