Sakol v. Commissioner of Internal Revenue

OAKES, Circuit Judge: Is it constitutional under the Fifth and Sixteenth Amendments for Congress, in taxing a corporate employee in connection with his purchase of his employer's stock, not to take into account any diminution in value of the stock that may be present by virtue of temporary restrictions on transfer in the employer's underlying stock purchase plan? Section 83(a) of the Internal Revenue Code governs the taxation of certain stock transfers to employees ""in connection with the performance of services.""1 It requires a taxpayer to include in gross income the excess of the stock's fair market value over its cost, as soon as the taxpayer's interest is no longer subject to a substantial risk of forfeiture. The actual value of the stock arguably may be less than the value of stock readily transferable on the open market because of restrictions imposed by the stock purchase plan. Nevertheless, these restrictions, other than permanent, nonlapsing restrictions, may not be considered in determining fair market value. Appellant argues that the Tax Court erroneously concluded that the statute was constitutional under the Fifth and Sixteenth Amendments. 67 T.C. 986 (Mar. 23, 1977). We disagree, and accordingly affirm the Tax Court.