§422 — Incentive stock options

Accordingly, we need not decide whether the general rule of sec.

Accordingly, we need not decide whether the general rule of sec.

Petitioners contend that the plan, pursuant to section 422, was an incentive stock option plan; they received stock; and the payment received was capital gain income.

We hold petitioner's rights were not subject to a substantial risk of forfeiture .

n individual pursuant to his exercise of a statutory option. Sec. 1.421-7(g), Income Tax Regs. ¹¹ A disposition.of ISO stock generally means any sale, exchange, gift, or transfer of legal title to, the stock. Sec. 424(c)(1). ¹² New regulations under sec. 422 became effective Aug. 3, 2004, but they are not applicable to this case. Sec. 1.422-5(f), Income Tax Regs. - 14 - Section 422(a) (2)¹³ requires the taxpayer to be an employee of the corporation granting the option at all times from the date

tems of tax preference described in section 57. Sec. 55(b)(2). For purposes of computing a taxpayer’s AMTI, section 56(b)(3) provides that section 421 shall not apply to the transfer of stock acquired pursuant to the exercise of an ISO as defined by section 422. Therefore, under the AMT, the spread between the exercise price and the fair market value of the shares of stock on the date an ISO is exercised is treated as an item of adjustment and is included in the computation of AMTI. See sec. 56(

422.101 through 422.112 (2000). The issuance of an SSN results in the creation of (1) a record at the SSA of that person’s earnings for purposes of determining the old-age, survivors, and disability insurance and other benefits to which that the person (continued...) - 8 - individual is the identifying number of the individual, except as othe

422.105 (2004). - 5 - attendants typically leave the United States within 12 hours ofarrival and nearly always leave within 24 hours ofarrival. They currently are paid on a "block-to- block" basis, meaning that they are compensated only for the period beginning when the aircraft pushes offfrom the blocks ofthe departure gate and ending when i

422.105 (2004). - 5 - attendants typically leave the United States within 12 hours ofarrival and nearly always leave within 24 hours ofarrival. They currently are paid on a "block-to- block" basis, meaning that they are compensated only for the period beginning when the aircraft pushes offfrom the blocks ofthe departure gate and ending when i

at 795, to eliminate the subjective inquiries into the intent and the nature ofpayments that had plagued the courts in favor ofa simpler, more objective test. See Baker v. Commissioner, T.C. Memo. 2000-164 (citing Hoover v. Cominissioner, 102 F.3d. at 845); H.R. Rept. No. 98-432, Part II, at 1495 (1984), 1984 U.S.C.C.A.N. 697, 11

The Form 656 attachment also cited as-an irgument, for acceptance of petitioner's OIC an incident in 1987 where petitioner's inability to understand section 422, had caused him -to forfeit an opportunity to exercise certain very valuable incentive stock options .

amount of the alternative minimum taxable income of any taxpayer (other than a corporation), the following treatment shall apply * * * : (3) Treatment of Incentive Stock Options .-- Section 421 shall not apply to the transfer of stock acquired pursuant to the exercise of an incentive stock option (as defined in section 422) .

The "restriction" cited by your representative is the provision of IRC Section 422 that provides for capital gain treatment on the sale of stock held for at least twelve months .

han a corporation), the following treatment shall apply * * *: # ‡ ‡ # * ‡ (3) Treatment of incentive stock options. — Section 421 shall not apply to the transfer of stock acquired pursuant to the exercise of an incentive stock option (as defined in section 422). * * * Section 421(a) provides in pertinent part: SEC. 421(a). Effect of Qualifying Transfer. — If a share of stock is transferred to an individual in a transfer in respect of which the requirements of section 422(a) or 423(a) are met— (

Specifically, section 421 applies to options that qualify as incentive stock options (ISOs) under section 422 (and to options that are issued pursuant to an employee stock purchase plan as defined in section 423).

I stock option agreement) in which SMI granted petitioner options to purchase 275,000 shares of SMI common stock with an exercise price of 10 cents per share. The stock options granted to petitioner qualified as incentive stock options (ISOs) under section 422. On November 19, 1999, petitioner entered into an employment agreement with Exodus Communications, Inc. (Exodus). On November 23, 1999, Exodus acquired SMI. As a result, Exodus converted petitioner’s options to purchase shares of SMI commo

Stock options that do not meet the requirements of statutory stock options are nonstatutory stock options. - 9 - amount that the fair market value of the shares he or she receives exceeds the exercise price that he or she pays. Sec. 83(a). For the taxpayer to be taxed at the time he or she exercises the option and receives the shares, th

I stock option agreement) in which SMI granted petitioner options to purchase 275,000 shares of SMI common stock with an exercise price of 10 cents per share. The stock options granted to petitioner qualified as incentive stock options (ISOs) under section 422. On November 19, 1999, petitioner entered into an employment agreement with Exodus Communications, Inc. (Exodus). On November 23, 1999, Exodus acquired SMI. As a result, Exodus converted petitioner’s options to purchase shares of SMI commo

.83-7(b) (1) and (2), Income Tax Regs. "Option privilege" is the value of the right to benefit from any future increase in the value of the property subject to the option, without risking any capital. Sec. 1.83-7(b) (3), Income Tax Regs. Pursuant to sec. 422, the exercise price relating to ISOs may not be less than the stock's market price on the grant date. Sec. 422(b) (4). -8- Petitioner, pursuant to broad-based plans (i.e., plans that offer ESOs to 20 percent or more of a company's employees)

1.83-7(b)(1) and (2), Income Tax Regs. "Option privilege" is the value of the right to benefit from any future increase in the value of the property subject to the option, without risking any capital. Sec. 1.83-7(b)(3), Income Tax Regs. Pursuant to sec. 422, the exercise price relating to ISOs may not be less than the stock's market price on the grant date. Sec. 422(b) (4). -8- Petitioner, pursuant to broad-based.plans (i.e., plans that offer ESOs to 20 percent or more of a company's employees),

795, and the Tax Reform Act of 1986, Pub. L. 99-514, sec. 1843(b), 100 Stat. 2853. In Hoover v. Commissioner, 102 F.3d 842, 845 (6th Cir. 1996), affg. T.C. Memo. 1995-183, the Court of Appeals for the Sixth Circuit explained that by the 1984 revision, “Congress specifically intended to eliminate the subjective inquiries into inte

422.104 (2000). Respondent bears the burden of proof with respect to new matters not raised in the notice of deficiency; thus, respondent must establish that petitioners are not entitled to the exemptions they claimed for their children. See Rule 142(a). The parties have stipulated that petitioners’ children are U.S. citizens, and petitioners

494, 795 (the DRA ‘84). The DRA ‘84, however, is applicable only to divorce instruments executed after December 31, 1984, or modified after December 31, 1984, where the modified instrument states that the amended version of section 71 will apply. See Deficit Reduction Act of 1984, supra at 798. In the present case, the support de

494, 795, effective for divorce and separation agreements entered into after December 31, 1984. The House Committee on Ways and Means, in its report on H.R. 4170, 98th Cong. 1st Sess., explained the reason for the enactment of DEFRA section 422 as follows: The committee believes that the present law definition of alimony is not s

494, 795 (the DRA ‘84). The DRA ‘84, however, is applicable only to divorce instruments executed after December 31, 1984, or modified after December 31, 1984, where the modified instrument states that the amended version of section 71 will apply. See Deficit Reduction Act of 1984, supra at 798. In the present case, the support de

494, 795, extensively changed the alimony rules effective for divorce decrees executed after Dec. 31, 1984. We note that this case involves sec. 71(a)(1) prior to its revision. - 11 - In deciding the character of an award in a divorce or separation decree, great weight is given to the language and structure of the decree. Griffi

re found accordingly. The stipulation of facts and the attached exhibits are incorporated herein by this reference. At the time she filed her petition, petitioner resided in Ponte Vedra, Florida. 1 The Deficit Reduction Act of 1984, Pub. L. 98-369, sec. 422, 98 Stat. 494, 795, extensively changed the alimony rules effective for divorce decrees executed after Dec. 31, 1984. This case involves sec. 71(a)(1) prior to its revision. -3- Background Petitioner, known as Catherine H. Poole at the time o

795, required that the divorce or separation instrument specifically designate that there was no liability to make any payment after the death of the payee spouse. That requirement was deleted by the technical corrections provisions of the Tax Reform Act of 1986 (TRA 86), Pub. L. 99-514, sec. 1843(b), 100 Stat. 2853, retroactive

795, required that the divorce or separation instrument specifically designate that there was no liability to make any payment after the death of the payee spouse. That requirement was deleted by the technical corrections provisions of the Tax Reform Act of 1986 (TRA 86), Pub. L. 99-514, sec. 1843(b), 100 Stat. 2853, retroactive