The opinion of the court was delivered by: MARSH
The facts as disclosed by the pleadings and stipulated by the parties, except as hereinafter specified, are adopted by the court as if found pursuant to Rule 52, Fed.R.Civ.P., 28 U.S.C.A
Summarizing the facts, it appears that Harry J. Hirshman was employed by the National Tube Company, a division of the United States Steel Corporation. While so employed on June 19, 1951, he received a stock option for the purchase of 450 shares of common stock of the United States Steel Corporation. At the time the stock option was granted, the fair market value of one share of common stock of United States Steel Corporation was $ 41.
Hirshman retired from his employment with National Tube Company in June, 1953, and died on April 15, 1955, as owner of the option but without having exercised it. On May 4, 1955, plaintiff, Wm. Joyce McTighe, Esq., the Executor of the Estate of Harry. J. Hirshman and the taxpayer in this case, exercised the option, at which time the market value of the stock was $ 85.50 per share.
The plaintiff filed a fiduciary income tax return for the Estate of Harry J. Hirshman for the year 1955 and included therein as ordinary income $ 19,181.25, which was the difference between the option price of $ 41 per share and the alleged market value of $ 83.625 per share for the 450 shares of stock on the day the option was exercised. By October 14, 1957, all of the taxes and interest due on the 1955 fiduciary return for the Estate of Harry J. Hirshman had been paid. Subsequently, the plaintiff filed a claim for refund of the entire amount of tax and interest paid for the year 1955, totalling $ 4,547.36. The claim for refund was disallowed to the extent of $ 4,384.74 and this suit followed.
Subsection 421(a) provides in part as follows:
'(a) Treatment of restricted stock options. -- If a share of stock is transferred to an individual pursuant to his exercise after 1949 of a restricted stock option, and no disposition of such share is made by him within 2 years from the date of the granting of the option nor within 6 months after the transfer of such share to him --
'(1) no income shall result at the time of the transfer of such share to the individual upon his exercise of the option with respect to such share:
'This subsection * * * shall not apply unless (A) the individual, at the time he exercises the restricted stock option, is an employee of either the corporation granting such option, a parent or subsidiary corporation of such corporation, or a corporation or a parent or subsidiary of such corporation issuing or assuming a stock option in a transaction to which subsection (g) is applicable, or (B) the option is exercised by him within 3 months after the date he ceases to be an employee of such corporations.'
The parties agree that if Harry J. Hirshman had not died and had exercised the option on May 4, 1955, he would not have been entitled to the benefits provided by subsection 421(a)(1) for he was not then an employee of United States Steel Corporation, or a parent or subsidiary thereof, and had ceased to be such an employee more than three months prior to that date.
The plaintiff, however, relying on subsection 421(d)(6)(A)(i) contends that since the option was exercised by the Executor of the Estate of Hirshman, the Estate is to be 'treated differently than the individual in exercising the restricted stock option' and is entitled, so plaintiff says, to the 'no income' benefit granted in subsection 421(a)(1).
Subsection 421(d)(6)(A)(i) provides:
'(6) Exercise by estate. --
'(A) In general. -- If a restricted stock option is exercised subsequent to the death of the employee by the estate of the decedent, or by a person who acquired the right to exercise such option by bequest or inheritance or by reason of the death of the decedent, the provisions of this section shall apply to the ...