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the transfer of property pursuant to such exercise, and
the employee or independent contractor realizes
compensation upon such transfer at the time and in the
amount determined under section 83(a) or 83(b). * * *
Sec. 1.83-7(a), Income Tax Regs.
The employee stock option issued to petitioner, because of
its lack of transferability, had no ascertainable market value
when granted. See McDonald v. Commissioner, 764 F.2d at 326.
Section 83(e)(3) provides that section 83 “shall not apply to the
transfer of an option without a readily ascertainable fair market
value”. Therefore, in accordance with this regulation and
section 83(a), because the option had no readily ascertainable
value when granted, upon the exercise of his option, petitioner
realized compensation in the amount of the difference between the
fair market value of the shares received and the amount paid as
the exercise price--$728,000.
B. Is the Assessment of a Deficiency Barred by the Statute of
Limitations?
The parties stipulate that the assessment of a deficiency in
this case is barred by the 3-year period of limitations under
section 6501(a) unless respondent proves a substantial omission
of income under section 6501(e).
Under section 6501(e), the 3-year limitation period is
extended to 6 years when a taxpayer omits properly includable
income from his or her return in an amount greater than 25
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Last modified: May 25, 2011