- 30 -
period during which petitioner would have been subject to suit
under section 16(b) of the Exchange Act expired in September
1999, several months before petitioner exercised his ISOs in
2000. Petitioner simply has not persuaded us that his liability
under section 16(b) of the Exchange Act extended beyond September
1999. Because petitioner was not subject to a suit under section
16(b) of the Exchange Act during 2000, we conclude petitioner’s
rights in his MGC shares were not subject to a substantial risk
of forfeiture within the meaning of section 83(c).11
IV. Whether Respondent Correctly Applied the $100,000 Annual
Limit on ISOs Imposed Under Section 422(d)
Section 422(d) provides stock options will be subject to
taxation as NSOs under section 83 if the aggregate fair market
value of stock a taxpayer may acquire pursuant to ISOs that are
exercisable for the first time during any taxable year exceeds
$100,000. Section 421(b) provides that if the transfer of a
share of stock to a taxpayer pursuant to the exercise of an
option would otherwise meet the requirements of section 422(a),
except there is a failure to meet a holding period requirement,
11 Petitioner contends sec. 1.83-3(j)(1), Income Tax Regs.,
is invalid insofar as the regulation fails to acknowledge that
the period during which an insider may remain subject to suit
under sec. 16(b) of the Exchange Act may extend beyond the normal
6-month period specified in that provision. Because we have
rejected petitioner’s argument that the period he was subject to
a suit under sec. 16(b) of the Exchange Act extended beyond the
6-month period beginning with the dates his ISOs were granted, we
need not address petitioner’s challenge to the validity of sec.
1.83-3(j)(1), Income Tax Regs.
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