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made a substantial payment on the debt. Petitioner argues that
the exercise of his nonstatutory stock options falls under
section 1.83-3(a)(2), Income Tax Regs., which provides: “The
grant of an option to purchase certain property does not
constitute a transfer of such property.” While the instant case
concerns whether petitioner recognized income upon exercise of
his nonstatutory stock options, not upon the grant of those
options to him, petitioner’s argument is that because he used a
loan from Comerica to exercise his nonstatutory stock options,
he, in effect, received options to buy the shares of stock.
Petitioner relies on the further clarification provided by
the regulation:
if the amount paid for the transfer of property is an
indebtedness secured by the transferred property, on
which there is no personal liability to pay all or a
substantial part of such indebtedness, such
transaction may be in substance the same as the grant
of an option. * * * [Sec. 1.83-3(a)(2), Income Tax
Regs.]
The regulation also suggests that “the extent to which the risk
that the property will decline in value has been transferred, and
the likelihood that the purchase price will, in fact, be paid”
should be taken into consideration in determining whether a
transfer has occurred. Id.
In addition, petitioner cites section 1.83-3(a)(7), Example
(2), Income Tax Regs., and argues that when an employee exercises
stock options using nonrecourse debt, he does not bear the risk
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