Alves v. Commissioner
United States Court of Appeals for the Ninth Circuit
734 F.2d 478 (1984)
Alves (plaintiff) bought restricted employer stock at what both sides stipulated was its fair market value at the time, but never made the election under Internal Revenue Code § 83 to be taxed at purchase rather than when the resale restrictions lapsed; when the restrictions lapsed years later and the stock had appreciated, the IRS (defendant) taxed the appreciation as ordinary income, and Alves argued § 83 shouldn't apply since his purchase price already equaled fair market value.
Whether an employee who purchased restricted stock in connection with his employment must report as ordinary income the stock's appreciation in value between purchase and the lapse of restrictions, absent an election at purchase to be taxed on the purchase-price/fair-market-value spread instead.