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Sec. 83(c)(2); sec. 1.83-3(d), Income Tax Regs. Property is
transferable if the person receiving the property can sell,
assign, and pledge his or her interest in the property to any
person and if the transferee is not required to give up the
property in the event a substantial risk of forfeiture
materializes. Sec. 1.83-3(d), Income Tax Regs.
In this case, there was a transfer of the shares to Mrs.
Racine, and she acquired beneficial ownership of the shares when
the options were exercised in 2000. She obtained legal title to
the shares and was entitled to receive dividends, to vote the
shares, and to pledge the shares as collateral. Mrs. Racine’s
rights were subject only to CIBC’s interest as the margin account
provider. See sec. 1.83-3(a), Income Tax Regs.
Thus, unless an exception to the general rule applies, the
shares would be treated as transferred and thus taxable to Mrs.
Racine when she exercised her options because she acquired
beneficial ownership of the Allegiance shares. Facq v.
Commissioner, supra; see Miller v. United States, supra at 1050.
Accordingly, the shares would be taxable when Mrs. Racine
exercised her options in 2000. Petitioners argue that this is
not the case and an exception to the general rule applies. If
petitioners are correct, there would be no transfer, and thus
Mrs. Racine would not be subject to tax in 2000. See sec. 83(a).
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Last modified: May 25, 2011