The 2000 Dot Bomb and the Proper Amt Treatment of Incentive Stock Options

Abstract

This article presents an analysis of the appropriate treatment, for alternative minimum tax purposes, of stock from the exercise of an incentive stock option (ISO) when the value of the stock has declined below the exercise price and is subsequetly sold or becomes worthless. Karlinsky examines the legislative intent behind the AMT system in general and the ISO treatment in particular and finds that the application of the "economic income" concept to several generalizable scenarios demonstrates that the "negative adjustment" treatment is consistent with legislative intent while the capital loss treatment is not.