Answer:
[tex][/tex] To determine how these transactions affect Arnold's Alternative Minimum Taxable Income (AMTI) in 2019, 2021, and 2022, we need to consider the tax implications of each event.
1. In 2019, when Arnold exercises the incentive stock option:
- The bargain element (the difference between the option price and the FMV of the stock) is:
1,500 shares ($110 - $80) = $30,000
- This amount does not impact the regular taxable income in 2019 but is included in the calculation of the adjusted gross income for Alternative Minimum Tax (AMT).
2. In 2021, when the rights become freely transferable:
- There is no immediate tax implication for Arnold in 2021 as the rights are not sold or exercised.
3. In 2022, when Arnold sells the shares for $165 per share:
- The sale proceeds from the shares are:
1,500 shares $165 = $247,500
- The cost basis for the shares sold is the bargain element from 2019: $30,000
- The gain on the sale is:
$247,500 - $30,000 = $217,500
- This gain is included in the regular taxable income for 2022.
To summarize how these transactions affect Arnold's AMTI:
- In 2019: The bargain element is included in the AMT calculation.
- In 2021: No immediate tax impact.
- In 2022: The gain from selling the shares is included in the regular taxable income, which may impact AMTI calculation depending on other factors.
Please note that there may be additional factors or deductions that could impact Arnold's AMTI, and it is advisable to consult a tax professional for a comprehensive analysis.