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alternative choice” to exercise the option or to allow it to
lapse. Id. at 895; see also Halle v. Commissioner, 83 F.3d 649,
654 (4th Cir. 1996), revg. and remanding Kingstowne L.P. v.
Commissioner, T.C. Memo. 1994-630; Koch v. Commissioner, supra at
82. Thus,
the clear distinction between an option and a contract
of sale is that an option gives a person a right to
purchase [or sell] at a fixed price within a limited
period of time but imposes no obligation on the person
to do so, whereas a contract of sale contains mutual
and reciprocal obligations, the seller being obligated
to sell and the purchaser being obligated to buy.
[Koch v. Commissioner, supra at 82.]
Option payments are not includable in income to the optionor
until the option either has lapsed or has been exercised.
Kitchin v. Commissioner, 353 F.2d 13, 15 (4th Cir. 1965), revg.
T.C. Memo. 1963-332; Va. Iron Coal & Coke Co. v. Commissioner, 99
F.2d 919 (4th Cir. 1938), affg. 37 B.T.A. 195 (1938); Elrod v.
Commissioner, supra at 1066-1067; Koch v. Commissioner, supra at
89. In Rev. Rul. 58-234, 1958-1 C.B. 279, 283-284, the
Commissioner has reiterated these same principles:
An optionor, by the mere granting of an option to
sell (“put”), or buy (“call”), certain property, may
not have parted with any physical or tangible assets;
but, just as the optionee thereby acquires a right to
sell, or buy, certain property at a fixed price during
a specified future period or on or before a specified
future date, so does the optionor become obligated to
accept, or deliver, such property at that price, if the
option is exercised. Since the optionor assumes such
obligation, which may be burdensome and is continuing
until the option is terminated, without exercise, or
otherwise, there is no closed transaction nor
ascertainable income or gain realized by an optionor
upon mere receipt of a premium for granting such an
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