MEMORANDUM OPINION
FAY, Judge: Respondent determined a deficiency of $ 39,114.00 in petitioners' Federal income tax for 1976. 1 Due to concessions, the sole issue is to determine the fair market value of stock acquired by Edward J. Phillippe (petitioner) pursuant to the exercise of certain nonqualified stock options.
All the facts have1982 Tax Ct. Memo LEXIS 716">*717 been stipulated and are found accordingly.
Petitioners, Edward J. Phillippe and Carolyn Phillippe, resided in Los Gatos, Calif., at the time they filed their petition in this case.
During 1976 petitioner was employed by Memorex Corporation as a vice-president and controller. Memorex is a publicly held corporation the shares of which are traded on the Pacific Stock Exchange (PSE).
In 1976 petitioner exercised two nonqualified stock options for the purchase of Memorex stock. The dates of exercise, the number of shares received, the mean price per share of stock on the PSE on the dates of exercise, and the option price were as follows:
| Option | Total | |||
| Date of | Number | Mean Price | price | Option |
| exercise | of shares | per share | per share | Price |
| 2/2/76 | 3,000 | $ 14.625 | $ 3.75 | $ 11,250.00 |
| 4/9/76 | 4,600 | 24.875 | 3.75 | 17,250.00 |
The lowest quoted market prices on the PSE for Memorex stock of the class here in issue within six months before or after February 2, 1976, and within six months before or after April 9, 1976, were $ 6.625 per share and $ 7.50 per share, respectively.
At the time he exercised the stock options, petitioner was subject1982 Tax Ct. Memo LEXIS 716">*718 to the provisions of section 16(b), Securities Exchange Act of 1934,
1982 Tax Ct. Memo LEXIS 716">*719 Generally,
The sole issue is whether potential section 16(b) liability affects the fair market value of stock transferred under
"The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts."
The courts have recognized that, while section 16(b) 1982 Tax Ct. Memo LEXIS 716">*721 liability affects a taxpayer's subjective valuation of the stock by influencing his own willingness to sell such stock, section 16(b) liability affects neither the marketability nor the market value of the stock itself.
Cf. Kolom v. Commissioner, cert. denied 81-2 USTC par. 9741 (Sup. Ct., Nov. 2, 1981) (Powell, J., dissenting). Section 16(b) does not prevent the disposition of the stock, nor does it affect the stock in the hands of the purchaser: As the Ninth Circuit Court of Appeals stated:
We are persuaded by the Commissioner's argument that [the taxpayer's] unwillingness to sell his stock [subject to section 16(b) liability] on the date he exercised the options is irrelevant to the determination of fair market value. [Kolom v. Commissioner, supra, 644 F.2d at 1288.]
1982 Tax Ct. Memo LEXIS 716">*722 Following the above precedent, we cannot accept petitioners' contention that section 16(b) liability reduces the fair market value of stock received in connection with the performance of services and taxable under
Accordingly, we agree with respondent's contention tht fair market value is the mean price at which1982 Tax Ct. Memo LEXIS 716">*723 Memorex stock was traded on the PSE on the dates of exercise. Where stock is traded on a national exchange, the fair market value of the stock is generally the price at which the stock is sold on that market.
In summary, we find that potential liability under section 16(b), Securities and Exchange Act of 1934, does not reduce the fair market value of stock received pursuant to the exercise of stock options which are taxable under
To reflect concessions,
Decision will be entered for respondent.
Footnotes
1. This deficiency resulted in an overassessment of $ 17,267 in petitioners' Federal income tax for 1977.↩
2. Under the terms of sec. 16(b), Securities Exchange Act of 1934, the profits realized by an officer or director of a corporation from the sale of an equity security of that corporation within 6 months after its acquisition inure to the benefit of, and are recoverable by, the corporation. Generally, the measurement of the sec. 16(b) liability is the difference between the price at which the shares were acquired and the sale price. Under reg. 16(b)-6, Securities and Exchange Commission,
17 C.F.R. sec. 240.16b-6 (1981)↩ , however, when a stock option is exercised more than 6 months after it was granted, the sec. 16(b) liability is subject to a maximum limit, measured by the difference between the sales price and the lowest quoted market price within 6 months before and after the date of exercise of the option.3. Unless otherwise indicated, all statutory references are to the Internal Revenue Code of 1954, as amended, and in effect during the taxable years in issue.↩
4. Petitioners contend that the decisions in
Anderson v. Commissioner, 480 F.2d 1304">480 F.2d 1304 (7th Cir. 1973), revg.56 T.C. 1370">56 T.C. 1370 (1971) andMacDonald v. Commissioner, 230 F.2d 534">230 F.2d 534 (7th Cir. 1956), affg. in part and revg. in part23 T.C. 227">23 T.C. 227 (1954), stand for the proposition that fair market value should be reduced by potential sec. 16(b) liability. Those same cases were argued by the taxpayers before this Court inKolom v. Commissioner, 71 T.C. 235">71 T.C. 235 (1978) and the Ninth Circuit Court of Appeals inKolom v. Commissioner, 644 F.2d 1282">644 F.2d 1282 (9th Cir. 1981). Both of those cases, Anderson and MacDonald↩, were distinguished and both this Court and the Ninth Circuit Court of Appeals rejected the taxpayers' contentions. No further discussion is here necessary.