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Discussion
Section 83(a) generally provides that when property is
transferred to a person in connection with the performance of
services, the fair market value of the property at the first time
the rights of the person having the beneficial interest in the
property are transferable or not subject to a substantial risk of
forfeiture, less the amount paid for the property, is includable
in the gross income of the person who performed the services.
See Tanner v. Commissioner, 117 T.C. 237, 241 (2001), affd.
65 Fed. Appx. 508 (5th Cir. 2003). In general, an employee who
receives a nonstatutory stock option without a readily
ascertainable fair market value is taxed not on the receipt of
the option, but at the time, pursuant to the employee’s exercise
of the option, the shares have been transferred to, and become
substantially vested in, the employee. See sec. 83(a), (e)(3);
Tanner v. Commissioner, supra at 242; sec. 1.83-1(a)(1), Income
Tax Regs. Shares become substantially vested in the employee
when the shares are either transferable or not subject to a
substantial risk of forfeiture. See Racine v. Commissioner, T.C.
Memo. 2006-162; Facq v. Commissioner, T.C. Memo. 2006-111; sec.
1.83-3(b), Income Tax Regs.
The parties do not argue that the disputed shares were
nontransferrable or that petitioner’s right to full enjoyment of
the shares was conditioned upon the future performance of
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