Washington - A ruling by the Tax Court has underscored the way the alternative minimum tax penalizes holders of incentive stock options when the stock loses value after the option is exercised.

Ronald Speltz thought that his employer was doing him a favor by issuing him ISOs to augment his salary, which was about $70,000 a year. Instead, the ISOs triggered a tax nightmare when he exercised them before the tech bubble burst, leaving him with nearly worthless stock but with an unexpected tax bill of close to $225,000.

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