The Tax Court yesterday decided Chou v. Commissioner, T.C. Memo. 2007-102 (4/25/07):
These issues arise in the context of a frequently occurring factual situation involving the alternative minimum tax (AMT) on incentive stock options (ISOs) exercised in 2000, followed by a drop in the value of the shares, a claim by the taxpayer that the taxable event occurred in a later year when the value of the shares was lower, and attempts to avoid or compromise the outstanding AMT liability. …
In 2000, Mr. Chou exercised 106,560 of his Cisco ISOs when the fair market value of the Cisco stock had an average price of $64.69 per share. Mr. Chou did not sell any of the Cisco shares acquired by him through the exercise of the ISOs during 2000. By the end of 2000, the price per share of Cisco stock was approximately $40.
In March 2001, petitioners had their tax return prepared and were told that they owed $1,962,365 in tentative AMT because of the exercise of Mr. Chou’s stock options. By April 2001, the price per share of Cisco stock was $17.64. …
On January 31, 2005, Mrs. Chou filed a Form 8857, Request for Innocent Spouse Relief, for 2000 and 2001. The letter submitting Mrs. Chou’s claims stated that the claim was being submitted as part of petitioners’ section 6330 hearing for 2001. The request asserted: “If Jeff and Cindy’s OIC is not granted, then Cindy’s claim for innocent spouse relief should be granted as to her since she did not cause the AMT liability and received no economic benefit from Jeff’s exercise of his Cisco ISOs.” …
Petitioners’ rhetoric includes irresponsible accusations against respondent, and respondent unnecessarily attacks the credibility of petitioners’ testimony, even after the Court commented at trial that their testimony was credible. We do not condone or address at length such overzealous advocacy and meritless arguments. Lack of objectivity serves no purpose other than unreasonably to protract these proceedings. …
When she signed the joint income tax return in April, the amount shown as owing, $1,928,732, appeared approximately 1-1/2 inches above her signature. … On the entire record, we conclude that Mrs. Chou knew or had reason to know that the tax would not be paid at the time that she signed the return. We do not question petitioners’ allocation of responsibility for family matters between themselves, but they have not shown that Mrs. Chou should be relieved of their joint liability on the 2000 return.
