- 53 -
be considered a capital asset. Consequently, our inquiry will
focus on whether or not the stock warrant in issue constituted a
trade discount given CV by Sun for the purchase of
workstations.17
Consideration of the facts and circumstances surrounding the
transaction between Sun and CV concerning the granting of the
second warrant leads us to conclude that the second warrant
constituted a trade discount from Sun to CV related to the
purchase of workstations. Respondent presented the testimony of
James Berrett, who was CV’s president at the time of the
negotiation of the agreements for the purchase of the
workstations and the issuance of the warrants. He testified
that, although the warrants were not a significant component of
the agreements between CV and Sun, they were an incentive for the
17
Petitioners contend that respondent abandoned on brief the
argument originally advanced in respondent’s trial memorandum
that the warrants in issue were within the inventory exception to
the definition of capital asset, sec. 1221(1), and suggest that
respondent is raising a new theory on brief by arguing that the
stock warrants constituted a trade discount. We consider
respondent’s argument on brief, however, to be merely a
development of the determination in the notice of deficiency,
which was that the net proceeds from the sale of the Sun warrants
were taxable “as ordinary income or as a decrease to cost of
goods sold.” We also disagree with petitioners that respondent
has conceded that a portion of the amount realized on the sale of
the warrants is taxable as long-term capital gain. Respondent
merely stated on brief, that, in the event we decided that the
appropriate time for recognition of the trade discount afforded
by the warrants was the date on which the warrants were first
exercisable, respondent would concede that the excess of the sale
price over their value on that date was gain from the sale or
exchange of a capital asset.
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