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that the stock option proceeds should be long-term capital gain.
At the very least, Henry was aware that Warner-Lambert chose to
coordinate with IMED on the issue of the proper taxation of the
outstanding stock options.
Hendrickson introduced Douglas to Henry and gave Douglas an
excellent recommendation. Douglas had been in contact with
Hendrickson regarding the IMED stock option plan when it was set
up, and he gave Douglas the impression that Arthur Young had
approved of the tax treatment of IMED's stock option plan.
Hendrickson addressed important tax matters with Henry and also
likely apprised him of the issue of the proper characterization
of the stock option proceeds.
It should also be noted that in 1981 Hendrickson was placed
on notice by the Stine letter that because "the definition of
'readily ascertainable fair market value' is virtually impossible
to meet, IMED's present position [that section 83 governed IMED's
stock options] is subject to challenge." The top executives and
officers of IMED believed that the proper treatment of the stock
option proceeds was as long-term capital gain. Yet the record
does not reflect that their belief was based on thorough research
or analysis. Nor did they consult their tax professionals
concerning the section 83 option issue. In this setting, the
Stine letter is the only in-depth inquiry concerning the proper
taxation of the income from the option proceeds. It appears
improbable that the significance of the Stine letter would escape
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