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This particular program was managed by Cramer, Monaghan, and
Hendrickson.
In the process of granting stock options to its employees,
IMED required the participants to file elections pursuant to
section 83(b) (section 83(b) elections).3 Generally, IMED did
not issue Forms W-2 or 1099 to any option grantee for the year in
which the option was issued. Subsequent to the section 83(b)
election, IMED did not deduct the costs of the stock options it
granted to its employees because that might result in the
realization of ordinary income by the recipients.
On August 17, 1979, Henry received his first stock options
(1979 options). The 1979 options granted Henry the right to
purchase 29,250 shares of IMED's common stock. The par value of
the common stock was 15 cents per share. Henry could exercise
his options to purchase stock at $13 per share.
On September 14, 1979, Hendrickson presented Henry with a
section 83(b) form to sign. Hendrickson further informed him
that this document was required to be signed in order to obtain
long-term capital gains on the 1979 stock options. The document
contains the note that, as a condition of exercising these
3 Sec. 83(a) provides generally that if property is
transferred to an individual as compensation for services,
recognition of income will be deferred if the property is not
transferable or is subject to a substantial risk of forfeiture.
Sec. 83(b) provides, in relevant part, that the employee may
elect within 30 days of receipt to include the value of the
property for the year he receives it, despite the fact that such
property is nontransferable and forfeitable.
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