Jorge O. and Clelia E. Svoboda - Page 17

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               Petitioner argues, in defense of his reporting of the stock            
          option transactions as capital gain, that the income he received            
          on account of the stock options was at risk from the time the               
          options were granted until they were exercised.  By contrast,               
          petitioner argues, wage income is not at comparable risk.  Thus,            
          petitioner believes, stock options are more akin to a capital               
          asset giving rise to capital gain than an item of compensation              
          income.  From an economic perspective, wherein petitioner's                 
          experience lies, there is some foundation for his position.                 
          Employee stock options are, however, given in exchange for                  
          services, and compensation for services generates ordinary income           
          for Federal income tax purposes.  Consequently, the Federal                 
          income tax treatment of employee stock options is a thornier                
          issue than petitioner's observations would allow.  Nonetheless,             
          we conclude, in light of all the facts and circumstances, that              
          petitioner's reporting of the income from the stock option                  
          transactions constituted an honest misunderstanding of the law              
          that is reasonable in light of his experience, knowledge, and               
          education.  Consequently, there was reasonable cause for the                
          understatement attributable to the failure to report the stock              
          option proceeds as compensation income.                                     
               To reflect the foregoing, and after concessions by both                
          parties,                                                                    
                                                  Decision will be entered            
                                             under Rule 155.                          




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