Racine v. Commissioner

EASTERBROOK, Chief Judge.

Non-cash compensation, such as shares of stock, is taxable when the “transfer” to the recipient occurs. 26 U.S.C. § 83. According to a Treasury Regulation, 26 C.F.R. § 1.83-3(a)(2), the grant of an option to purchase stock (or other property) is not itself a transfer, which does not occur until the option is exercised. This case presents the question whether the “transfer” may be postponed even after the option’s exercise, on the theory that borrowing to finance the transaction amounts to a second option that replaces the first.

Gail Racine held options to purchase…