Gresham v. Commissioner
United States Tax Court
Sec. 57(a)(6), I.R.C. 1954, includes as a tax preference item the difference between the fair market value and the option price of stock issued upon the exercise of a qualified stock option. Held: Where the option shares are subject to the restrictions of the Securities Act of 1933 as amended and an investment letter, the fair market value is the discounted value which would be realized in a private placement.
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Sec. 57(a)(6), I.R.C. 1954, includes as a tax preference item the difference between the fair market value and the option price of stock issued upon the exercise of a qualified stock option. Held: Where the option shares are subject to the restrictions of the Securities Act of 1933 as amended and an investment letter, the fair market value is the discounted value which would be realized in a private placement. Sec. 1.57-1(f)(3), Income Tax Regs., which directs that restrictions which lapse should be ignored in determining fair market value, is invalid.
1Opinion of the Court
Whitaker, Judge:
Respondent determined deficiencies in petitioners’ income taxes as follows:
Year1 Deficiency
1975 .$13,234.59
1976 . 17,916.67
The sole issue for decision is the fair market value for purposes of the minimum tax, section 57(a)(6),2 of shares of stock acquired by petitioner Louis B. Gresham pursuant to several exercises of a qualified stock option.
FINDINGS OF FACT
The facts are fully stipulated and are found accordingly.
Louis B. Gresham (petitioner) and Margaret S. Gresham are husband and wife. They filed joint Federal income tax returns for the years 1975 and 1976. Mrs. Gresham is…
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