                  T.C. Summary Opinion 2003-69



                     UNITED STATES TAX COURT



              ROBERT A. BUCKLEY, JR., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5696-02S.                 Filed June 9, 2003.


     Robert A. Buckley, Jr., pro se.

     Kathryn K. Vetter, for respondent.



     PAJAK, Special Trial Judge:    This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.    Unless otherwise

indicated, section references are to the Internal Revenue Code in

effect for the year in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.    The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.
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     Respondent determined a deficiency in the amount of $167 in

petitioner’s 1999 Federal income tax.      This Court must decide

whether a payment received by petitioner’s spouse from her

employer in exchange for the termination of employee stock

options is taxable as a capital gain or ordinary income and

whether petitioner is entitled to a credit for payment of excess

Subtitle C-Employment Taxes.    Secs. 6211(a), 6214, 7442 (FICA

taxes).

     Some of the facts in this case have been stipulated and are

so found.   Petitioner resided in Manteca, California, at the time

he filed his petition.

     During 1999, petitioner was married to Darla K. Buckley

(Mrs. Buckley).   Mrs. Buckley was employed by BFI Waste Systems

of North America, Inc. (Systems) in 1999.      As part of Mrs.

Buckley’s employment by Systems, she was granted options to

purchase 300 shares of Systems stock.      In 1999, Systems merged

with another company.    The Systems Stock Option “Merger Plan”

provided that Mrs. Buckley would receive $4,650 on the

cancellation of her stock options.       Mrs. Buckley’s stock options

were canceled in 1999 for $4,650.

     Systems issued a Form W-2, Wage and Tax Statement, to Mrs.

Buckley for 1999.   Wages of $53,937 (all amounts are rounded)

were reported on the Form W-2.    The $53,937 wage amount included

the $4,650 payment received by Mrs. Buckley for her canceled
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stock options.    Systems withheld Social Security and Medicare

taxes (FICA taxes) totaling $356 from the $4,650 payment.

     Petitioner and Mrs. Buckley jointly filed a 1999 Federal

income tax return.    On the return, petitioner and Mrs. Buckley

reported wages of $49,287 and a capital gain of $4,650.    The

$4,650 capital gain was reported on Schedule D, Capital Gains and

Losses, as the sale of 300 shares of Systems.    The $356 of FICA

taxes withheld from the $4,650 was claimed as a payment on Line

62, “Excess social security and RRTA tax withheld”.

     Respondent determined that the $4,650 received by Mrs.

Buckley on the cancellation of the Systems stock options was

taxable as ordinary income.    Respondent also disallowed the

claimed excess FICA taxes withheld of $356.

     In general, the Commissioner’s determinations are presumed

correct, and the taxpayer bears the burden of proving otherwise.

Rule 142(a); Welch v. Helvering, 290 U.S. 111 (1933).     Petitioner

does not argue the applicability of section 7491(a), and the

record reflects that section 7491(a) does not apply.

     Section 83(a) generally provides that when property is

transferred to a taxpayer in connection with the performance of

services, the excess fair market value of the property over the

amount, if any, paid for the property, is includable as

compensation in the gross income of the taxpayer who performed

the services.    See also sec. 1.83-1(a)(1), Income Tax Regs.
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     “Where [as in the instant case], the option itself is

transferred or canceled prior to exercise, section 421 is not

applicable, and the gain realized on such cancellation or

transfer is compensation.”     Mitchell v. Commissioner, 65 T.C.

1099, 1110 (1976), affd. 590 F.2d 312 (9th Cir. 1979).    We

further held in Bagley v. Commissioner, 85 T.C. 663 (1985), affd.

806 F.2d 169 (8th Cir. 1986), that a payment received by the

taxpayer from an employer in exchange for the cancellation of

stock options was includable in gross income as compensation

pursuant to section 83.

     Petitioner has provided no evidence to support his

contention that the $4,650 payment received to cancel Mrs.

Buckley’s Systems stock options was taxable as a capital gain.

Mrs. Buckley received her stock options as part of her employment

with Systems.   In exchange for canceling Mrs. Buckley’s stock

options, Systems paid her $4,650.    Thus, since Mrs. Buckley’s

stock options were received in connection with her employment

with Systems and canceled prior to being exercised, section 83(a)

applies.   Sec. 1.83-7(a), Income Tax Regs.

     Under section 83(a), Mrs. Buckley realized ordinary income

at the time she received the $4,650 payment from Systems to

cancel the stock options.     Bagley v. Commissioner, supra; sec.
1.83-7(a), Income Tax Regs.    Since Mrs. Buckley paid nothing upon

the grant or the cancellation of the Systems stock options, her

amount paid is zero.   Accordingly, we sustain respondent’s
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determination that the $4,650 received by Mrs. Buckley on the

cancellation of the Systems stock options is taxable as ordinary

income under section 83(a).

     Next, we consider whether petitioner is entitled to a credit

with respect to the $356 of FICA taxes withheld from the $4,650

payment received by Mrs. Buckley.    Petitioner did not mention the

claimed excess FICA credit issue at trial, and we deem this issue

to be conceded.

     Nevertheless, this Court’s jurisdiction in determining a

credit of FICA taxes is expressly limited by section 31(b) to

FICA taxes withheld as a result of receiving wages from more than

one employer.     Chatterji v. Commissioner, 54 T.C. 1402, 1405

(1970).   Section 31(b) does not apply in this case.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                           Decision will be entered

                                      for respondent.
