Options Trading Tutorial

I exercised and held ISO stock options.If i dont fill out the AMT form.How would the IRS find out?

Public Comments

1. Wouldn't they have a list of everyone that needs to pay taxes? They would get suspicious and audit you.
2. The clearing house, broker / dealer, or whomever you placed the trade with will have a record of the transation and any such gain will most likely be reported on a 1099-R or 1099-DIV.
3. Your financial institution (stockbroker, for example) is required to report those transactions to the IRS. There is a bit of processing time involved, but the IRS would probably find out you failed to report income within two or three years (probably faster nowadays--I can only hope they've upgraded their computer system since I worked there). You would receive a long letter from the IRS when the paperwork caught up. Your consequences could include some combination of negative credit reports, interest charges, failure to pay penalty, jail time, and seizure of your property, depending upon the amount of taxes you owe and how quickly and politely you cooperate and pay up. They don't have to do it often, but I understand IRS raids are considered the best-run raids in federal law enforcement.
4. If you excercised and held the stock options (you bought but did not sell the stock) the difference between the option price and selling price the day of the sale would be reported as regular income on your W-2. If you did not qualify for AMT, the IRS won't care. If your income level requires you to itemize your deductions, then you are supposed to do the AMT calculations to see if you are required to pay AMT. As long as the IRS does not audit your return, you will probably be ok. If you use TurboTax or some other electronic tax preperation software, it will let you know if you are affected by AMT.