Anthony Theophilos Patricia A. Theophilos v. Commissioner Internal Revenue Service

This appeal is from a deficiency judgment rendered by the Tax Court. The Tax Court found that when the taxpayer acquired stock in a closely held corporation on December 10, 1986, he incurred taxable income for the excess of the fair market value of the property over the amount paid for the property under § 83(a) of the Internal Revenue Code. See Theophilos v. Commissioner, 67 T.C.M. (CCH) 2106, 1994 WL 31445 (1994). The taxpayer does not dispute he received property from his employer under § 83(a), but asserts he possessed a contract to acquire the stock in 1985 when he agreed to resign from his law firm to join Greater Suburban Mortgage (GSM), a California corporation engaged in the mortgage banking business. At that time, the taxpayer contends, he agreed to pay full value for the stock and, as a result, did not incur any taxable income under § 83(a). The Commissioner argues the taxpayer did not pay full value for the stock and that all he acquired before December 10, 1986, was an option to purchase stock which is expressly not covered as a transfer of property under § 83(e)(3). The Tax Court found the taxpayer had entered into an executory contract containing conditions yet to…