James A. Powers & Jennifer M. Scherer v. Commissioner
2017 T.C. Memo. 179
| Tax Ct. | 2017Background
- James A. Powers (former comScore general counsel) received nonqualified stock options in 2003 to acquire 100,000 shares; after a 1:5 reverse split he held options for 20,000 shares at $1.25/share.
- comScore issued W-2 (2007) reporting $131,000 wages; petitioners reported $126,000 of that as ordinary income in 2007 based on Powers’ April 14, 2008 email stating he paid $5,000 to exercise 4,000 options in December 2007.
- comScore issued a 2008 Form 1099‑MISC reporting $250,104 of nonemployee compensation; petitioners conceded $250,104 was ordinary income from exercising 14,000 options in 2008 but denied any additional 2008 option exercises.
- IRS examined returns and determined Powers exercised 18,000 options in 2008 (i.e., an extra 4,000 exercised in January 2008), issuing a deficiency notice for 2008 and 2009; taxpayers petitioned the Tax Court.
- The central factual dispute: whether the 4,000 options in question were exercised in December 2007 (taxed in 2007) or in January 2008 (taxed in 2008).
- Court found contemporaneous documents (comScore’s Taxes Due and Paid Report, Form 1099‑MISC), petitioners’ April 2008 email, and Powers’ testimony supported a December 2007 exercise; no evidence showed an actual January 2008 exercise. Court denied IRS request to amend answer to increase deficiency.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 4,000 options were exercised in Dec 2007 or Jan 2008 (unreported 2008 income) | Powers: exercised in Dec 2007; income reported in 2007 W-2; sold shares in Jan 2008 but acquired in Dec 2007 | IRS: exercise occurred in Jan 2008 (brokerage deposit Jan 17, 2008); therefore income taxable in 2008 | Held for petitioners: exercised in Dec 2007; no unreported 2008 income from those 4,000 options |
| Sec. 6651(a)(1) addition to tax for late-filed 2008 return | Petitioners later argued they were not liable despite stipulation | IRS asserted addition applies; parties had stipulated liability | Held for IRS: petitioners bound by stipulation that they are liable for the late-filing addition to tax |
| Sec. 6662(a) accuracy-related penalty for 2008 | Petitioners later argued penalty should not apply despite stipulation | IRS asserted penalty applies; parties had stipulated liability | Held for IRS: petitioners bound by stipulation that they are liable for the accuracy-related penalty |
Key Cases Cited
- Welch v. Helvering, 290 U.S. 111 (burden of proof general rule)
- Estate of Bongard v. Commissioner, 124 T.C. 95 (allocation of burden and standard of proof)