126 T.C. No. 10
UNITED STATES TAX COURT
ROBERT J. MERLO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21538-03. Filed April 25, 2006.
P exercised incentive stock options on Dec. 21,
2000, acquiring 46,125 shares of E stock. As a result,
under I.R.C. secs. 55(b)(2), 56(b)(3), and 83(a), P was
required to include $1,066,064, the spread between the
exercise price and the fair market value of the shares
of E stock on the date of exercise, in his alternative
minimum taxable income in 2000. Instead, P included
only $452,025, the spread between the exercise price
and the fair market value of the shares of E stock on
Apr. 15, 2001.
In 2001, E filed for bankruptcy, and P’s shares of
E stock became worthless. Under I.R.C. sec. 165(g)(1),
P realized a capital loss for alternative minimum tax
purposes of $1,075,289 in 2001.
R determined a deficiency of $169,510 in P’s 2000
Federal income tax. P maintains that the capital loss
limitations of I.R.C. secs. 1211 and 1212 do not apply
for purposes of the alternative minimum tax. As a
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1 Petitioner concedes respondent’s disallowance of a loss
of $21,871 claimed on Schedule E, Supplemental Income and Loss,
in 1999 and respondent’s allowance of additional itemized
deductions of $6,797 in 1999.
result, P argues that he may use his capital losses
realized in 2001 to reduce his alternative minimum
taxable income in 2000.
Held: The capital loss limitations of I.R.C.
secs. 1211 and 1212 apply for purposes of calculating
alternative minimum taxable income.
Held, further: P’s capital losses realized in 2001
do not create an ATNOL that can be carried back to
reduce his alternative minimum taxable income in 2000.
Don Paul Badgley, Brian G. Isaacson, and Duncan C. Turner,
Julie L. Payne and Kirk M. Paxson, for respondent.
HAINES, Judge: Respondent determined deficiencies in
petitioner’s Federal income taxes of $4,833 and $169,510 for the
years 1999 and 2000, respectively. After concessions,1 the
issues for decision are: