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The amount of the underlying tax liability may be placed at
issue if the taxpayer did not receive a statutory notice of
deficiency or otherwise have an opportunity to dispute the tax
liability. Sec. 6330(c)(2)(B); see Behling v. Commissioner, 118
T.C. 572, 576-577 (2002). In this case, petitioners were not
issued a notice of deficiency and did not have a prior
opportunity to dispute the tax liability. Therefore, the proper
standard of review for the arguments challenging the underlying
tax liability is de novo. Sego v. Commissioner, supra at
609-610.
B. ISOs and the Employee Requirement Under Section 422(a)(2)
Petitioner’s original 2000 return reported ordinary gain
resulting from the exercise of his ISOs for 315,136 shares
pursuant to section 83.7 Petitioner now contends that he was
employed by i2 within 3 months of exercising his options as
required under section 422(a)(2), allowing him to apply section
421(a) to the transactions so that he does not have to recognize
the ordinary gain reported on his original 2000 return.8
Respondent argues petitioner was not an employee of i2
within 3 months of exercising his ISOs, and section 83, not
7 Petitioner was granted options to acquire 346,000 shares
of stock, 315,136 of which were ISOs and 30,864 were NSOs.
8 Petitioner does not allege, and the record does not
suggest, that his ownership right in his i2 stock was
nontransferable or subject to a substantial risk of forfeiture
when he exercised his options on Nov. 13, 2000.
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