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the year of the sale.
However, you may have ordinary income for the year
that you sell the stock in either of the following
situations.
• You do not meet the holding period
requirement. This situation applies only if
you sell the stock within 1 year after its
transfer to you or within 2 years after the
option was granted.
Relying on Publication 525, petitioner interprets the section
422(a)(1) holding period provision as affording taxpayers a
"choice": a taxpayer may comply with the holding period either
by holding the option for 2 years after its grant, or by holding
the stock for 1 year after its acquisition pursuant to the
option.8 In other words, petitioner interprets the two
disjunctive holding periods as alternative qualifying conditions;
that is, if either period is satisfied, then the holding period
requirement is met. Therefore, in petitioner's view, he
qualifies by virtue of his disposal of the stock more than 2
years after the grant of the options.
Neither section 422(a)(1), nor its explication in
Publication 525, is susceptible to the interpretation advocated
by petitioner. The language of section 422(a) is plain and
clear:
Section 421(a) shall apply with respect to the transfer
of a share of stock to an individual pursuant to his
8 Petitioners' view of the language, as they argue on brief,
is that "The word OR means a choice".
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Last modified: May 25, 2011