Kevin B. Kimberlin and Joni R. Steele, et al. - Page 10
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I. Applicable Law
Pursuant to section 83, the warrants are taxable as income
if they were issued to Ventures “in connection with the
performance of services”. Sec. 83(a). Whether property is
transferred in connection with the performance of services is
essentially a question of fact. Bagley v. Commissioner, 85 T.C.
663, 669 (1985), affd. 806 F.2d 169 (8th Cir. 1986). Section
1.83-3(f), Income Tax Regs., provides:
Property transferred to an employee or an independent
contractor * * * in recognition of the performance of,
or the refraining from performance of, services is
considered transferred in connection with the
performance of services within the meaning of section
83. * * * The transfer of property is subject to
section 83 whether such transfer is in respect of past,
present, or future services.
Ventures was prevented, by virtue of Ciena’s breach, from
performing services it very much wished to perform. The warrants
were issued to Ventures pursuant to the SRA, and not in
recognition of the performance of, or the refraining from the
performance of, Ventures’ past, present, or future services.
Indeed, respondent stipulated that Ventures “never performed any
services for Ciena”. In short, the requisite connection between
the issuance of the warrants and the performance of services does
not exist. Thus, section 83 is inapplicable.
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Last modified: November 10, 2007