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
ISOs.
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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