Jorge O. and Clelia E. Svoboda - Page 12

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          options, equal to the difference between the option price and the           
          fair market value of the stock on the date of transfer.                     
          Petitioner's sale of the stock on the same day generates no gain,           
          as his basis in the stock (consisting of his option price and the           
          amount of ordinary income recognized under section 83(a)) equaled           
          his sales price.                                                            
               Petitioner contends, however, that his Fluor stock options             
          were ISOs and that he satisfied the holding period of section               
          422(a)(1).  That section provides as follows:                               
               SEC. 422. INCENTIVE STOCK OPTIONS                                      
                    (a) In General.--Section 421(a) shall apply with                  
               respect to the transfer of a share of stock to an                      
               individual pursuant to his exercise of an incentive                    
               stock option if--                                                      
                         (1) no disposition of such share is made                     
                    by him within 2 years from the date of the                        
                    granting of the option nor within 1 year                          
                    after the transfer of such share to him * * *                     

          IRS Publication 525 (as applicable for the preparation of 2002              
          Federal income tax returns) provides an explanation of the                  
          section 422(a)(1) holding period requirement as follows:                    
                    If you receive a statutory stock option, do not                   
               include any amount in your income either when the                      
               option is granted or when you exercise it.  You have                   
               taxable income or deductible loss when you sell the                    
               stock that you bought by exercising the option.  Your                  
               income or loss is the difference between the amount you                
               paid for the stock (the option price) and the amount                   
               you receive when you sell it.  You generally treat this                
               amount as capital gain or loss and report it on                        
               Schedule D (Form 1040), Capital Gains and Losses, for                  






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