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nothing more than the grant of another option regardless of
whether the debt is to the employer or to a margin account
provider. According to petitioners, Congress intended to deny
capital gains treatment to those who do not make any capital
investment in their options. See Palahnuk v. United States, 70
Fed. Cl. 87, 92 (2006). Thus, according to petitioners, because
Mrs. Racine exercised her options using a loan from CIBC and
therefore had no capital at risk, no transfer occurred until CIBC
sold the stock to satisfy the margin calls on Mrs. Racine’s
account.
We disagree with petitioners’ position and instead adopt the
reasoning and conclusion reached in Facq v. Commissioner, T.C.
Memo. 2006-111.9 Contrary to petitioner’s reading, Example 2 in
the regulations can be distinguished from the current
circumstances. Example 2 deals with what the employer
transferred or received in exchange, rather than what the
employee has at risk. Facq v. Commissioner, supra; Palahnuk v.
United States, supra. Example 2 describes an alternative method
of providing an employee an option to purchase property. Facq v.
Commissioner, supra; Palahnuk v. United States, supra; sec. 1.83-
3(a)(7), Example (2), Income Tax Regs. Rather than grant the
9The circumstances of the exercised options and the
arguments made by petitioners in this case are identical to those
in Facq v. Commissioner, T.C. Memo. 2006-111, and thus there is a
clear precedent to be followed.
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