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2001-14, 2001-1 C.B. 516.
While on this record we are not persuaded that petitioner
held ISOs, the result in this case is the same whether the stock
was acquired pursuant to ISOs or nonqualified stock options.
That is because it is undisputed that in both transactions
petitioner exercised his option to acquire the stock, and sold
the stock, on the same day. Thus, if one assumes petitioner held
ISOs, he nonetheless would have forfeited the deferral and
capital gains treatment provided in section 421(a), by virtue of
his sale of the stock on the day it was transferred to him, in
violation of the 1-year holding period mandated in section
422(a)(1). As a consequence, he would have realized ordinary
income upon the disposition of the stock, under section 83(a),
equal to the difference between the option price and the fair
market value of the stock on the date of exercise. Sec. 421(b);
Spitz v. Commissioner, supra; sec. 14a.422A-1, Q&A-2(a),
Temporary Income Tax Regs., 46 Fed. Reg. 61840 (Dec. 21, 1981).
Alternatively, if one assumes petitioner held nonqualified
stock options, then petitioners were required to recognize
ordinary income, under section 83(a), upon the transfer of the
stock to petitioner in 2002 pursuant to the exercise of his
7(...continued)
Flour stock's fair market value on the exercise date over the
exercise price. See Merlo v. Commissioner, 126 T.C. 205, 209
(2006).
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