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by the option holder within 2 years of the granting of the option
or within 1 year after the stock's transfer to him, section 421
does not apply, and the stock's acquisition and sale are taxed
under the provisions of section 83. Sec. 422(a)(1); Spitz v.
Commissioner, supra; sec. 14a.422A-1, Q&A-2(a), Temporary Income
Tax Regs., 46 Fed. Reg. 61840 (Dec. 21, 1981).
Petitioners contend that petitioner acquired the Fluor stock
at issue pursuant to ISOs. Their only evidence for this claim is
petitioner's testimony to that effect. All other evidence in the
record points to the contrary conclusion that the options
petitioner held were nonqualified options. The computation
worksheets provided to petitioner by Fluor concerning the two
stock option transactions were each entitled "Computation
Worksheet for Non-Qualified Stock Option Exercise for Shares",
and each described the difference between the option price and
the fair market value of the stock at exercise as either the
"wage element" or "taxable compensation". The Form W-2 issued by
Fluor to petitioner reported the proceeds from the stock option
transactions under the "Nonqualified plans" category. Finally,
Fluor collected withholding taxes with respect to the proceeds,
which would not have been required with respect to the
disposition of stock acquired pursuant to an ISO.7 See Notice
7 Moreover, had petitioner been granted ISOs (as he claims)
which were exercised in 2002, he would have had alternative
minimum taxable income in 2002 measured by the excess of the
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