- 23 -
certain to occur. It follows that consideration of section 1.83-
3(a)(5), Income Tax Regs., is unnecessary because the
prerequisite condition was not satisfied. Accordingly, the stock
was properly transferred to petitioner pursuant to section 83(b)
when petitioner exercised option No. 117.19
After petitioner exercised option No. 117 on April 5, 2000,
he made a timely section 83(b) election applicable to all the
nonvested stock subject to the employment restriction. As a
result, he recognized AMTI in 2000 to the extent the FMV of the
underlying shares of stock on the date of exercise exceeded the
option price. See sec. 83.
E. Claim of Right
If the section 83(b) election is valid, petitioner argues
that because he forfeited 6,667 shares of nonvested Ariba stock
for its exercise price on May 30, 2001, he is entitled to a 2001
tax deduction under section 1341(a) equal to the 2000 AMT
attributable to the inclusion of AMTI of $679,825.
A taxpayer qualifies for a deduction under section 1341 if
(1) an item was included in the taxpayer’s gross income in a
19 Petitioner also argues that the transfer of nonvested
stock was invalid because it was subject to the claims of Ariba’s
creditors. Petitioner cites the definition of property as his
authority. Sec. 1.83-3(e), Income Tax Regs. There is nothing in
the record to support petitioner’s claim that creditors of Ariba
could reach petitioner’s shares of nonvested stock while in
escrow. Furthermore, shares of stock clearly constitute
property, and the nonvested shares were transferred to petitioner
subject to a lapse provision.
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