Aaron L. Kolom and Serita Kolom v. Commissioner of Internal Revenue

Aaron L. Kolom and Serita Kolom appeal from a decision of the United States Tax Court determining a deficiency in their federal income tax for the taxable year 1972 in the amount of $43,792. The issue before us is whether restrictions placed upon the sale of stock by section 16(b) of the Securities Exchange Act of 1934 (the Act) affect the valuation of stock for purposes of asserting a minimum tax when stock options are exercised. We affirm.

I

During the taxable year 1972, Kolom was an officer and director of Tool Research and Engineering Corporation (Tool Research). Kolom had received options to purchase shares of Tool Research stock pursuant to an employees’ stock option plan. The plan met the qualification requirements of sections 421 and 422 of the Internal Revenue Code of 1954 (the Code). In 1972, Kolom exercised some of these options. The dates of exercise, the number of shares received, the mean price of the stock on the New York Stock Exchange on the date of exercise, and Kolom’s option price were as follows:

Date of Exercise Number of Shares Mean Price Per Share on N.Y.S.E. Option Price Per Share Total Option Price

9/15/72 6,678 $52.00 $13.25 $88,464

10/5/72 4,174…