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upon the exercise of a stock option), the excess of the fair
market value of the property (stock) over the amount, if any,
paid for the property (the exercise price) shall be included in
the taxpayer’s gross income in the first year in which the
taxpayer’s rights in the property are not subject to a
substantial risk of forfeiture. See Montgomery v. Commissioner,
127 T.C. 43, 53-54 (2006).
Petitioners assert that, of the $746,191 in taxable income
reported on the Intel W-2, $606,963 is not included in gross
income. Petitioners do not address this assertion in detail.
However, it appears that petitioners are arguing that the
$606,963 should be treated as long-term capital gain, which could
be offset by long-term capital losses realized in 2000, and thus
would not be included in their gross income. Petitioners’
position is without merit.
Petitioner exercised on January 11 and April 17, 2000,
nonqualified stock options granted to him by Intel, resulting in
realized gains of $66,887 and $540,076, respectively (the spread
between the exercise price and the market price of the stock on
the dates of exercise). This gain is not recognized as long-term
capital gain. Instead, section 83(a) and section 1.83-1(a)(1),
Income Tax Regs., establish that such gain is ordinary income
included in petitioners’ gross income as compensation in 2000,
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