117 T.C. No. 20
UNITED STATES TAX COURT
PAUL A. TANNER, SR. AND BEVERLY N. TANNER,
Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5738-00. Filed December 10, 2001.
P planned to acquire control of C, a corporation.
C required P to sign a lockup agreement, which
restricted P’s sale of any C stock. The agreement
provided that, if P sold the stock within 2 years of
its acquisition, he would be subject to sec. 16(b) of
the Securities Exchange Act of 1934.
On July 9, 1993, P received a nonstatutory
employee stock option from C. On Sept. 7, 1994, P
exercised this stock option. P pledged some of this
stock as collateral for a loan, and the stock was sold
by the lender.
C issued P a Form 1099 for 1994 reporting income
from P’s exercise of the stock option. On the basis of
the Form 1099, R issued a notice of deficiency for 1994
determining that P received “other income” of $728,000
--the difference between the option price and the price
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