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option price), granted HJA the option to purchase Henry’s stock
in HJA for $1,030,000. The option price was to be paid as
follows:
(i) The sum of Forty-Eight Thousand Six
Hundred Fifty-Three and 62/100 Dollars
($48,653.62), already received by HM prior to
execution of this Agreement;
(ii) The sum of One Hundred Seventy-Five
Thousand Three Hundred Forty-Six and 38/100
($175,346.38) at the time of the mutual
execution and delivery of this Agreement;
(iii) Transfer and relinquishment by AM
and JM of all of their right, title and
interest in and to the securities currently
in the possession of HM, valued at
approximately Seventy-Six Thousand Dollars
($76,000.00).
Pursuant to the EOA, HJA transferred funds and assets with
an aggregate value of $286,41111 to Henry for the option to
purchase his stock. The parties agree that $136,411 of this
amount was investment income to Henry in 1990. The tax treatment
of the remaining $150,000 is at issue in this case.
The EOA required that Henry’s HJA stock be placed in escrow
until the option to purchase Henry’s stock was exercised and the
sale closed. The EOA, however, gave Abram and Julius effective
control over Henry’s HJA stock beginning in March 1990.
11The parties agree that the amount actually paid was
$286,411, despite language in the EOA stating that the aggregate
option price was $300,000. The parties also agree that the
entire payment is taxable in 1990. The only issue regarding the
option payment is to whom the disputed balance of $150,000 is
taxed.
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