Robert C. and Gail K. Racine - Page 12

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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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