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Petitioner further argues that the stock purchased from the
option exercise was nontransferable and subject to a substantial
risk of forfeiture because petitioner was subject to section
16(b) for a period of 2 years under the lockup agreement.
Respondent argues that, upon exercise of the stock option,
petitioner recognized compensation income under section 83.
Respondent counters that the shares were not subject to section
83(c)(3) when petitioner exercised the option on September 7,
1994, because the section 16(b) limitation had expired.
Respondent contends that the 6-month period in which petitioner
was prohibited from selling the securities under section 16(b)
began when the option was granted, not exercised. Respondent
argues that, under a 1991 amendment to section 16(b), any
acquisition of an option involves a “purchase” for section 16(b)
purposes, and section 16(b) liability is triggered by either a
“purchase and sale” or a “sale and purchase”. Because the
option was granted on July 9, 1993, respondent contends that the
6-month period of section 16(b) liability would have expired by
the time petitioner exercised the stock option (i.e., September
7, 1994). Therefore, respondent argues that the section 83(c)(3)
exception does not apply and that exercise was subject to
taxation under section 83(a).
Respondent further argues that petitioner and Polyphase may
not extend the statutory 6-month period of section 16(b)
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