Iso-amt

[DaveinTexas]

I have a new client that brings me information about his exercising of ISOs from his employer.
He hands me the form from his employer that states:

Option granted: 04/22/2001
Option Exercised: 12/15/2006
# of shares: 5,000
Price paid per share: $5.092
Market Value per share: $10.38

The difference between the price paid and the FMV is $26,440. He tells me that he would hand a form similar to this, number of shares and amounts are similar, to his old CPA every year but that he never did anything with it because AMT "was not an issue". This client earns over $190,000 a year with 3 kids and deducts about $9000 in property taxes and $2500 in sales tax (TEXAS) each year---AMT here we come. The FMV of the ISOs minus the amount paid results in a $26,440 adjustment to AMT, creating an additional $7,500 in AMT.

Anyway, is there anyway that these ISOs are not subject to the adjustment to AMT? The rules say something about being subject to a substantial risk of forfeiture. Can anyone shed some light on this subject?

TIA

[BP.]

Was the stock sold the year it was purchased, or is it being held? TTB 6-17 & 18 has discussion, and also check Pub 525.

[JoshinNC]

Was the disposition reported on his W-2?

I have a new client that brings me information about his exercising of ISOs from his employer.
He hands me the form from his employer that states:

Option granted: 04/22/2001
Option Exercised: 12/15/2006
# of shares: 5,000
Price paid per share: $5.092
Market Value per share: $10.38

The difference between the price paid and the FMV is $26,440. He tells me that he would hand a form similar to this, number of shares and amounts are similar, to his old CPA every year but that he never did anything with it because AMT "was not an issue". This client earns over $190,000 a year with 3 kids and deducts about $9000 in property taxes and $2500 in sales tax (TEXAS) each year---AMT here we come. The FMV of the ISOs minus the amount paid results in a $26,440 adjustment to AMT, creating an additional $7,500 in AMT.

Anyway, is there anyway that these ISOs are not subject to the adjustment to AMT? The rules say something about being subject to a substantial risk of forfeiture. Can anyone shed some light on this subject?

TIA

Is so than it occurred in the year of excercise and there is no adjustment for AMT. If not than it didn't occur in the year of excercise and there is an AMT adjustment. Additionally, if he has sold it, than it was held less than 1 year and the gain, if any, is ordinary income, not capital gain.

[DaveinTexas]

ISOs have not been sold

Currently, he has not sold any of these options. So you're telling me there is no way out of this AMT nightmare, right?

TIA

[JoshinNC]

According to my understanding of the rules as shown in TTB

If they are not sold in the year in which they are excercised you are subject to AMT adjustment. But, I'm not an options guru. Maybe someone more informed knows something I don't (which is why I come here anyway, to learn from the best!)

[S T]

ISO Info

I just completed an ISO transaction for one of my clients. So maybe this link will assist you http://turbotax.intuit.com/tax_help/...ons/article#a2

Sandy

[DaveinTexas]

One last thing

I recently spoke to the client and he gave me this information:

In the shareholder agreement, privately held C Corp, if he were to sell his shares back to the company, the company would buy these shares back at 75% of FMV at the time of sale.

Knowing this, could I reduce the current FMV of these shares by 75% so that the bargain element of the transaction would also be reduced; ultimately reducing his adjustment to AMT.

The above sentence was the client's reasoning, but at this point, anything sounds better than the inevitable. I can just imagine my client's head spinning and as Glenn Beck puts it "blood is about to shoot out of my eyes!", when I was explaining all of this to him.

TIA

[Grumpy]

Just curious - how is the FMV determined for shares in a privately held C Corporation?

[JoshinNC]

I LOVE Glen Beck

I recently spoke to the client and he gave me this information:

In the shareholder agreement, privately held C Corp, if he were to sell his shares back to the company, the company would buy these shares back at 75% of FMV at the time of sale.

Knowing this, could I reduce the current FMV of these shares by 75% so that the bargain element of the transaction would also be reduced; ultimately reducing his adjustment to AMT.

The above sentence was the client's reasoning, but at this point, anything sounds better than the inevitable. I can just imagine my client's head spinning and as Glenn Beck puts it "blood is about to shoot out of my eyes!", when I was explaining all of this to him.

TIA

He does a great job of mixing comedy and political speech (I guess it helps that I agree with 80% of what he says, unlike Jon Stewart).

I too have a question about how you value stock of a closely held C corp.

[DaveinTexas]

I'm just the messenger

He tells me this company is privately owned and I assumed it was a C Corp. He does not receive a K-1.

I asked him why the company didn't just pay him dividends as opposed to ISOs. He tells me that this is their way of paying him dividends.

Back to the shareholder agreement: My client says there is a clause in the agreement that states if he does not retire with the company, he can choose to sell the shares back to the company at 75% of the FMV at the time of sale.

I don't know how you value a C Corporation's shares; I am no CPA. My guess is you value the assets of the corporation, subtract the liabilities, add some sugar, add some goodwill and divide that amount by the total outstanding shares to arrive at total market capitalization.

Okay, I took some finance classes in college, but like I said, I am no CPA.

Back to the original point. Do you think that I can use that 75% FMV number to reduce the bargain amount and ultimately reduce the amount of the AMT adjustment?

Hep me buddies.

[Grumpy]

I'm no CPA either, but it seems to me if the company has stated that the current FMV is $10.38 per share and has only stated that the taxpayer MAY sell them back to the company at 75% of some future, unknown, FMV, then there are no grounds on which to assume a lower current FMV.

[Bird Legs]

Valuation of stock.

There are appraisers that will do the valuation of a closed corporation.
Also, there should have been a method of valuation in the corporate records.
You might try googling for: closed corporation appraiser in such & such an area.