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(1) The amount paid (if any) for such property, over,
(2) The amount realized (if any) upon such forfeiture.
If such property is a capital asset in the hands of the
taxpayer, such loss shall be a capital loss. * * * .
Petitioner is not a securities dealer, and he held his Ariba
shares strictly as an investor. Stock is a capital asset. Sec.
1221(a)(1). Thus, petitioner’s nonvested Ariba stock was a
capital asset in his hands, and any loss realized upon its
forfeiture is characterized as a capital loss. See sec. 1.83-
2(a), Income Tax Regs.
Furthermore, the phrase “amount paid” in section 1.83-
2(a)(1), Income Tax Regs., refers “to the value of any money or
property paid for the transfer of property to which section 83
applies”. Sec. 1.83-3(g), Income Tax Regs. Therefore, pursuant
to sections 1.83-2(a) and 1.83-3(g), Income Tax Regs., a taxpayer
is barred from recognizing as a capital loss the previous amount
included as compensation when nonvested stock subject to a
section 83(b) election is subsequently sold for less than its
FMV. Theophilos v. Commissioner, 85 F.3d 440 (9th Cir. 1996),
revg. T.C. Memo. 1994-45.
Petitioner paid Ariba $625 in 2000 to exercise the option to
acquire 6,667 shares of subsequently forfeited stock and elected
to recognize the excess of the FMV over the exercise price on the
date of exercise as compensation for AMT purposes. Ariba paid
petitioner $625 to repurchase the 6,667 shares in 2001, causing
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