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Spencer Trask did not report, on its originally filed 1995
return, income from the receipt of warrants, nor did it report
income from the exercise of the warrants on its 1997 return. In
March 1998, Spencer Trask filed an amended return relating to
1995 and reported $13,500 of income relating to the receipt of
the warrants. On February 16, 2005, respondent mailed a notice
of deficiency to Spencer Trask. The notice of deficiency
determined that, pursuant to sections 83 and 61, the warrants
received by Spencer Trask resulted in $43,950,000 of taxable
income in 1997 (i.e., the year the warrants were exercised).
Mr. and Mrs. Kimberlin did not report income from the
receipt of warrants on their originally filed 1995 return, nor
did they report, on their 1997 return, income from the exercise
of the warrants. In March 1998, Mr. and Mrs. Kimberlin filed an
amended tax return relating to 1995 in which they reported
$76,500 of income relating to the receipt of the warrants. On
September 24, 2004, respondent mailed separate notices of
deficiency to Mr. and Mrs. Kimberlin. The notices of deficiency
determined that in 1997 Mr. Kimberlin received a dividend from
Spencer Trask of $36,625,000 relating to the exercise of
warrants.
After Mr. Kimberlin received warrants pursuant to the terms
of the SRA, the warrants were reissued, in accordance with Mr.
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