Robert C. and Patricia C. Humphrey - Page 1

                                 T.C. Memo. 2006-242                                  

                               UNITED STATES TAX COURT                                

                 ROBERT C. and PATRICIA C. HUMPHREY, Petitioners v.                   
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 19295-03L.         Filed November 9, 2006.                  

                    P-H, as vice president of i2 Technologies, Inc.                   
               (i2), received incentive stock options (ISOs).  On Dec.                
               31, 1999, P-H resigned as i2’s senior vice president of                
               marketing.  On Nov. 13, 2000, P-H exercised many of his                
                    Ps filed a joint Federal income tax return for                    
               2000, wherein they reported ordinary gain for regular                  
               income tax purposes from the exercise of the ISOs and                  
               reported a regular income tax of $8,772,392.  Ps did                   
               not fully pay the tax liability.  Ps subsequently                      
               submitted to R an amended return for 2000 in which they                
               claimed they were not subject to regular income tax                    
               upon the exercise of the ISOs because P-H was an                       
               employee of i2 within 3 months of exercising the ISOs                  
               as required pursuant to secs. 421(a) and 422(a)(2).  R                 
               rejected Ps’ 2000 amended return and issued to Ps a                    
               notice of Federal tax lien.  Ps requested a hearing                    
               under sec. 6330.  The Appeals Office rejected Ps’                      

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