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passing first through the employee/owners. We view likewise the
excess payments which Lakewood made directly to Peoples Security.
Accordingly, in both cases, the employee/owners are considered
for purposes of the Federal tax law to have received the excess
contributions (or payments) when the contributions (or payments)
were first made.
Petitioners rely mistakenly on section 83 to argue that the
individual petitioners may not be taxed currently on the excess
contributions.37 Section 83 has no application to a case such as
37 Sec. 83 provides in relevant part:
SEC. 83. PROPERTY TRANSFERRED IN CONNECTION WITH
PERFORMANCE OF SERVICES.
(a) General Rule.--If, in connection with the
performance of services, property is transferred to any
person other than the person for whom such services are
performed, the excess of--
(1) the fair market value of such
property (determined without regard to any
restriction other than a restriction which by
its terms will never lapse) at the first time
the rights of the person having the
beneficial interest in such property are
transferable or are not subject to a
substantial risk of forfeiture, whichever
occurs earlier, over
(2) the amount (if any) paid for such
property,
shall be included in the gross income of the person who
performed such services in the first taxable year in
which the rights of the person having the beneficial
interest in such property are transferable or are not
subject to a substantial risk of forfeiture, whichever
(continued...)
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