Henry

MEMORANDUM ***

Albert J. Henry was the vice president-finance, chief financial officer, and a member of the board of directors of IMED Corporation. IMED provided stock options to Henry and other officers for their service to the corporation. The IMED option holders filed I.R.C. § 83(b) elections in which they reported the fair market value of the options as zero. The options were eventually sold to Warner-Lambert Company in 1982, and the taxpayers reported long-term capital gain from the sale of the options. In Cramer v. C.I.R., 101 T.C. 225 , 1993 WL 369030 (1993), aff'd, 64 F.3d 1406, 1412 (9th Cir.1995), the court held that I.R.C. § 83 required such proceeds to be treated as ordinary income because the options did not have a “readily ascertainable market value” as defined in Treas. Reg. § 1.83-7 (b)(2). As a result, the three officers in Cramer understated their income by long-term capital gain treatment of the sale of the options to Warner-Lambert. In the present dispute, Petitioners stipulated they would be bound by the holding of Cramer with respect to the treatment of the options.

However, in the Tax Court, the Petitioners asserted the Internal Revenue Service (IRS)…