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of decline in value except to the extent he or she makes payments
toward the principal of the debt.
Section 1.83-3(a)(7), Example (2), Income Tax Regs., is
distinguishable from the present case. In the example, the
employee received shares of stock from his employer in exchange
for a nonrecourse note. In this case, the indebtedness was not
owed to the employer, InsWeb, but to an unrelated third party.
Also contrary to the example, petitioner was personally liable to
Comerica.
The facts do not support petitioner’s assertion that when he
received his shares of InsWeb common stock, he in effect received
only options to purchase InsWeb common stock at a future date.
The amount petitioner paid InsWeb was not indebtedness of any
nature. Rather, petitioner paid InsWeb in full by checks for the
exercise prices as well as the required withholding amounts for
taxes. In addition, the type of property transferred was shares
of stock which he actually received. After exercising his
nonstatutory stock options, petitioner had the right to receive
dividends and the right to vote with respect to the shares of
stock he purchased. Thus, petitioner did not receive another
option but instead received shares of stock.
Furthermore, petitioner incurred personal liability to pay
all of the debt secured by the shares. There was no provision in
the promissory note or security agreement which limited
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