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.

Question

Quizplus · Accepted Answer

All of the statements are correct. 
A) Since the fair market value of the stock on the exercise date was less than the option price, there is no AMT adjustment required in 2011. 
B) There is no taxable income for Collis unless the stock is sold or exchanged. 
C) The AMT basis in the stock is the option price of $75 per share multiplied by the number of shares acquired, which equals $11,250. Since the stock was worth $130 per share at exercise, there is an $18,750 AMT preference item as well. 
D) The income tax basis in the stock is the fair market value on the date of exercise, which is $130 per share. 
Therefore, all of the statements provided are correct.

In 2005, Collies Exercised an Incentive Stock Option (ISO), Acquiring