-9-
OPINION
I. Receipt of Income on Exercise of Option
We are asked to decide whether petitioners received income
when Mr. Facq exercised his options through a margin account in
2000. Petitioners argue that exercising an option through a
margin account is properly treated as the grant of another option
to buy the shares and that petitioners were thus not taxable when
Mr. Facq exercised his options. Instead, petitioners were
subject to tax when the shares were sold to pay the margin debt.
Petitioners’ arguments are virtually identical to those
decided in this Court, three District Courts, and the Court of
Federal Claims. See Hilen v. Commissioner, T.C. Memo. 2005-226,
appeal docketed, No. 06-70290 (9th Cir., Jan. 19, 2006); Palahnuk
v. United States, 70 Fed. Cl. 87 (2006); United States v. Tuff,
359 F. Supp. 2d 1129 (W.D. Wash. 2005), appeal docketed, No.
05-35195 (9th Cir., Mar. 7, 2005); Facq v. United States, 363 F.
Supp. 2d 1288 (W.D. Wash. 2005), appeal docketed, No. 05-35124
(9th Cir., Feb. 8, 2005); Miller v. United States, 345 F. Supp.
2d 1046 (N.D. Cal. 2004), appeal docketed, No. 04-17470 (9th
Cir., Feb. 7, 2005). Respondent argues that the exception
treating the exercise of an option as the grant of another option
does not apply and that the income was properly reported when Mr.
Facq exercised his options rather than when the shares were sold
to pay off the margin debt. We agree with respondent and with
the holdings in the other cases.
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