Court Opinion

ID: 4484755
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:58.414086+00
Date Added: 2024-06-11T12:10:38.046643
License: Public Domain

Fay, J., dissenting: I respectfully dissent. In my view, section 83 was enacted in response to abuses in deferred compensation plans. Read as a whole, it applies only when there is a bargain element in the transfer which is in consideration or recognition of the performance of services. Although I, too, find the parties’ stipulation that the restricted and unrestricted stock had the same value somewhat troublesome, I am not willing to ignore it. Accordingly, I accept as fact that no bargain element was involved when petitioners first acquired the stock. Section 83 applies to transfers "in connection with the performance of services.” To me, the legislative history indicates that the section is intended to apply only where the taxpayer receives stock as compensation in some way for services; in other words, only when there is a bargain element involved in the transfer. See generally the dissenting opinion of Judge Whitaker, p. 881. Consistent with the legislative history, the regulations refer to transfers made "as compensation for services,” "in recognition of the performance of, or the refraining from the performance of services.” See secs. 1.83-2(a) and l.83-3(f), Income Tax Regs. Whether the transfer is in consideration or recognition of the performance of services is essentially a question of fact. See sec. 1.83-3(f), Income Tax Regs. When fair market value is paid for the stock, as stipulated to by the parties herein, I find it conclusive that no part of the transfer was made in recognition of the performance of services. In the instant case, we have nothing more than an equity investment in the corporation. Section 1.83-2(a), Income Tax Regs., provides that the election under section 83(b) is not precluded when "full value” is paid for the stock. Unfortunately, the term "full value” is not defined. If "full value” means fair market value determined without regard to the restriction, the regulation is, in my opinion, an unwarranted extension of the statute and I would not allow it to govern the outcome of this case.1  For cases like this one, interpreting "full value” to mean fair market value determined without the restriction converts the section 83(b) election provisions into a trap. Section 83(b) permits a taxpayer receiving restricted stock to include in gross income for the year of receipt the "excess” of the fair market value (determined without regard to lapse restrictions) over the amount (if any) paid for the stock. He thereby avoids the necessity for including in gross income the excess of the fair market value of the stock over its cost in the year the restriction lapses. What taxpayer reading section 83(b) would know to make such an election when he paid fair market value for stock determined without the restriction and, therefore, had nothing to include in gross income in the year he received the stock? Only by reading section 83 in disregard of its intended purpose and the legislative history can the result of the majority be reached. I do not think Congress intended to tax at ordinary rates the gain on the sale of restricted stock which was bought at the same price that unrestricted stock was sold. True, that result can be avoided by making the section 83(b) election, but I do not think Congress intended to require a taxpayer to elect to include something in gross income when that taxpayer had nothing to include in gross income. For these reasons, I would hold section 83 does not apply to these facts. Featherston, Goffe, and Hamblen, JJ., agree with this dissenting opinion.  We note petitioners’ claim that the pertinent language of the regulation was promulgated in 1978 in response to their request for a technical advice memorandum from the National Office. Before that time, the regulation contained no language purporting to apply sec. 83 when full value for the stock was paid.