- 16 -
Next to both entries was the following reference: "SEE ATTACHED
COMPUTER D".
On Schedule D, a schedule petitioners included with their
1982 Federal income tax return, they listed their capital gains.
Petitioners reported:
Productive Date Date Gross Sale Cost or Gain or1
Assets AcquiredSold Price Other Basis (Loss)
10,000 shares IMED Corp.1980 1982 $1,638,100 -0- $1,638,100
25,250 options IMED Corp.1978 8/19/82 3,807,953-0- 3,807,953
50,000 options IMED Corp.1981 8/19/82 3,190,500-0- 3,190,500
1 This column reflects gains reported under the category of "More than 1, 5 years or
less".
Petitioners reported a total of $8,636,553 as long-term capital
gain in the "FEDERAL TOTALS" column. On the second page of the
Schedule D, petitioners reported a net gain of $8,655,862.
Hendrickson had overall corporate tax responsibility within
IMED. Hendrickson apprised Henry concerning matters related to
petitioners' personal taxes but believed that was not
specifically part of his duties at IMED. Hendrickson stated that
it became apparent, sometime in 1977 or 1978, that with respect
to the stock options, unless something was changed, long-term
capital gain was not a possibility. Hendrickson also believed
that it would be difficult to overturn the particular regulation
in question. Hendrickson warned some of the option holders that
capital gain was not guaranteed. At the time of IMED's sale in
1982, Hendrickson knew that the stock option proceeds were not
entitled to long-term capital gain treatment.
Monaghan was aware of "ongoing discussions" regarding the
proper tax treatment of the stock options throughout the
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