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Warner-Lambert or IMED, declaring the option proceeds as income.
Also, based on an earlier discussion with Hendrickson regarding
IMED's stock option plan, Douglas surmised that Arthur Young
approved the tax treatment of the stock option proceeds based on
the legislative history of section 83. In addition, Douglas
believed that the attorneys representing Warner-Lambert and IMED
had structured the transaction to accomplish long-term capital
gain for the option holders. Finally, in reaching his decision,
Douglas relied on the fact that Hendrickson had informed him
about the section 83(b) elections. Douglas concluded that the
elections put respondent on notice regarding the stock options.
However, Douglas knew that there was a distinct possibility that
respondent might challenge the classification of Henry's stock
option proceeds as long-term capital gain.
Douglas prepared petitioners' 1982 joint Federal income tax
return. Henry provided Douglas with the Form W-2 that he
obtained, through IMED, from Warner-Lambert. Douglas, however,
did not review the option documents or the option plan.
Petitioners' 1982 Federal income tax return reported income
from wages of $92,875 and capital gain of $3,462,345. On the
Schedule D included with their 1982 Federal income tax return,
petitioners reported a short-term loss of $3,796 and long-term
capital gains of $8,636,553, the net of which resulted in the
$3,462,345 after considering the deduction for capital gains.
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