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exercise amount, the fair market value, the exercise price, the
per-share blockage discount applied by Zila, the amount of
ordinary income reported on Form 1099, and the additional
discount for restrictions on stock taken by petitioner
(marketability discount). The schedule contained the following
statement concerning the marketability discount:
THIS DISCOUNT TAKEN BECAUSE TAXPAYER FEELS THAT STOCK
WOULD BE SEVERELY EFFECTED IF HE PUT ALL THESE SHARES
ON MARKET IN ONE BLOCK. IN ADDITION TAXPAYER CANNOT
SELL SHARES FOR THESE YEARS PER SEC REGULATIONS.
THEREFORE, PRESENT VALUE IS LESS.
In the second Stipulation of Settled Issues filed with the Court,
petitioner and respondent agreed that petitioner is entitled to
only one discount of $282,979 and that, in 1993, petitioner
understated ordinary income from the exercise of Zila stock
options by $282,979.
The applicable regulations regarding the accuracy-related
penalty as to negligence, which became effective for returns due
after December 31, 1991, and applied to returns filed for 1993,
contained an adequate disclosure exception. See sec. 1.6662-
2(d), Income Tax Regs. These regulations provided that no
penalty under section 6662(a) and (b)(1) will be imposed where a
taxpayer has made an adequate disclosure of a nonfrivolous
position in accordance with the provisions of section 1.6662-
4(f)(1), (3), (4), and (5), Income Tax Regs. See secs. 1.6662-1,
1.6662-3(c)(1) and (2), Income Tax Regs. Under the regulations,
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