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sale at a $66,921.56 fair market value on the exercise date. The
difference, $10,975.13, was recorded by Fluor on the worksheet as
"taxable compensation" from the transaction. Fluor withheld
amounts for Federal and State income and employment taxes from
petitioner's $10,975.13 proceeds.
Fluor issued petitioner a Form W-2, Wage and Tax Statement,
for 2002 that reported $102,226.81 under "Wages, tips, other
compensation". The parties have stipulated that this amount
represents the sum of $28,852.09 paid as salary to petitioner in
2002, the $62,399.59 in proceeds from the February 25, 2002,
stock option transaction, and the $10,975.13 in proceeds from the
July 10, 2002, stock option transaction. The Form W-2 reported
$73,374.72 (i.e., the sum of the foregoing proceeds from stock
option transactions) as an amount under "Nonqualified plans".
Following petitioner's receipt of the Form W-2, he contacted
the payroll department at Fluor. Petitioner indicated his belief
that the stock option transaction proceeds resulted in capital
gain rather than compensation income and inquired as to why those
amounts were included in the figure for "Wages, tips, other
compensation" on the Form W-2. Petitioner was advised by the
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