25 May Question 1. In 2005, Collies exercised an incentive stock option (
Question
1. In 2005, Collies exercised an incentive stock option (ISO), acquiring 150 shares of stock at an option price of $75 per share (fair market value at the date of exercise was $130 per share). In 2014, the rights in the stock become freely transferable (fair market value is still $130 per share). Which of the following statements is incorrect?
a. Collis has no AMT adjustment from the ISO in 2011.
b. Collis has no taxable income from the ISO in 2011.
c. Collis has an AMT basis of $19,500 in the stock.
d. Collis has an income tax basis of $11,250 in the stock.
e. All of the above are correct.
2. Marvin, the vice president of Lavender, Inc., exercises stock options for 100 shares of stock in March 2014. The stock options are incentive stock options (ISOs). Their exercise price is $20 and the fair market value on the date of exercise is $28. The options were granted in March 2010 and all restrictions on the free transferability had lapsed by the exercise date.
a. If Marvin sells the stock in December 2014 for $3,000, his AMT adjustment in 2014 is a positive adjustment of $800.
b. If Marvin sells the stock in December 2015 for $3,000, his AMT adjustment in 2015 is $0.
c. If Marvin sells the stock in December 2014 for $3,000, his AMT adjustment in 2014 is a negative adjustment of $800.
d. If Marvin sells the stock in December 2015 for $3,000, his AMT adjustment in 2015 is a negative adjustment of $1,000.
e. None of the above.
3. Factors that can cause the adjusted basis for AMT purposes to be different from the adjusted basis for regular income tax purposes include the following:
a. A different amount of depreciation (cost recovery) has been deducted for AMT purposes and regular income tax purposes.
b. The spread on an incentive stock option (ISO) is recognized for AMT purposes, but is not recognized for regular income tax purposes.
c. A different amount has been deducted for circulation expenditures for AMT purposes and for regular income tax purposes.
d. Only a. and b.
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