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Petitioners are not lawyers or accountants and are not
educated in U.S. tax laws. They retained and relied upon Richard
Steinauer, a tax attorney with the Isaacson law firm, to prepare
the 2000 amended tax return and a Form 8275, Memorandum of Law.
In May 2004, respondent opened an examination of
petitioners’ 2000 joint income tax return and issued a notice of
deficiency dated July 20, 2004. Respondent determined pursuant
to section 83 that petitioners should have included the spread
between the fair market value of the shares and the exercise
price for the shares as gross income for the 2000 taxable year.6
Respondent accordingly determined that $774,147 was the correct
tax liability, rather than the $259,685 reported on the amended
return, resulting in a $514,462 deficiency. Respondent also
determined that petitioners were liable for the accuracy-related
penalty of $102,892.40 under section 6662(a). Petitioners timely
filed a petition for review with this Court.
Discussion
I. Receipt of Income on Exercise of Option
We are asked to decide whether petitioners received income
when Mrs. Racine exercised her options through a margin account
in 2000. Petitioners argue that exercising an option through a
6In petitioners’ original tax return for the year 2000, the
amount of tax calculated, $774,147, was the same as the
respondent’s examination revealed. The issue of the case arises
with petitioners’ amended tax return, which was filed in 2003.
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