Gantner v. C.I.R., s. 89-1952

• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)
• Writing for the Court: Before WOLLMAN and MAGILL; WOLLMAN
• Citation: 905 F.2d 241
• Parties: -5163, 90-2 USTC P 50,335 David E. GANTNER and Sandra L. Gantner, Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee. David E. GANTNER and Sandra L. Gantner, Appellees, v. COMMISSIONER OF INTERNAL REVENUE, Appellant.
• Docket Number: Nos. 89-1952,89-1953,s. 89-1952
• Decision Date: 12 June 1990

Page 241

905 F.2d 241 66 A.F.T.R.2d 90-5163, 90-2 USTC P 50,335 David E. GANTNER and Sandra L. Gantner, Appellants,
v.
COMMISSIONER OF INTERNAL REVENUE, Appellee.
David E. GANTNER and Sandra L. Gantner, Appellees,
v.
COMMISSIONER OF INTERNAL REVENUE, Appellant. Nos. 89-1952, 89-1953. United States Court of Appeals,
Eighth Circuit. Submitted Feb. 14, 1990.
Decided June 12, 1990.

Page 242

Mark Arth, St. Paul, Minn., for appellant.

John A. Dudeck, Jr., Washington, D.C., for appellee.

Before WOLLMAN and MAGILL, Circuit Judges, and BOGUE, ^* Senior District Judge.

WOLLMAN, Circuit Judge.

This case is before us on cross appeals by David E. and Sandra L. Gantner and the Commissioner of Internal Revenue (Commissioner). The Commissioner appeals the Tax Court's decision allowing the Gantners to deduct the loss from the sale of stock options on their joint federal income tax return. The Gantners appeal the Tax Court's rulings that: (1) denied deductions and tax credits for computer equipment; (2) assessed interest for underpayment of taxes; and (3) denied litigation costs. ¹ We affirm.

Page 243

I. APPEAL BY COMMISSIONER

During 1980, David E. Gantner ² purchased and sold options for stock, although he neither acquired nor sold the underlying shares of stock. Gantner was not a licensed broker, but purchased and sold stock options through a brokerage firm. On November 20 and December 2, 1980, he bought a total of 100 options to purchase stock of Tandy Corporation for $90,399.70. Each option entitled him to purchase 100 shares of Tandy at $100 per share and each option was to expire in January 1981. On December 3, 1980, Gantner sold the options for $51,490, thus incurring a loss of $38,909.70. Also on December 3, 1980, he purchased an additional 100 options.

Gantner deducted a loss of $38,909.70 on his 1980 income tax return. Following an audit, the Commissioner disallowed the loss based on section 1091 of the Internal Revenue Code, the "wash sale" provision, as in effect during 1980. See 26 U.S.C. Sec. 1091 (1954). ³ Based on that adjustment, the Commissioner asserted a deficiency in the Gantners' joint income tax for 1980. Upon review, the Tax Court held in favor of the Gantners, finding that section 1091 does not preclude deductions for loss from the sale of options. The Commissioner appeals.

The Commissioner contends that the Gantners' options to purchase stock are "securities" for purposes of the wash sale provision of section 1091 and therefore the Gantners' loss should not be allowed. 26 U.S.C. Sec. 1091(a) disallows deductions of losses from wash sales of stock or securities

i]n the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale * * * and ending 30 days after such date, the taxpayer has acquired * * * or has entered into a contract or option so to acquire, substantially identical stock or securities[.

(Emphasis added.) The Commissioner asserts that tax law and securities law generally define the term "securities" to include options or rights to purchase stock.

We review the Tax Court's conclusions of law de novo. Mangels v. United States, 828 F.2d 1324, 1326 (8th Cir.1987). The Tax Court held that the plain meaning of section 1091(a) is that an option to acquire stock is not equivalent to "stock or securities" and that a loss sustained from a sale of stock options is not a loss within the plain meaning of section 1091.

Section 1091 does not define what constitutes a "security" for purposes of section 1091. Neither the Commissioner nor the Gantners cite case law determining whether an option is a security under section 1091.

The reacquisition event in section 1091 requires the taxpayer to have "acquired * * * or ha[ve] entered into a contract or option so to acquire," substantially identical stock or securities. This phrase, through the use of the connecting word "or" indicates that a contract or option to purchase stock is not the same as an acquisition of stock. We hold that an option to purchase stock is not a "share" of a "stock or security" under the plain language of section 1091. We therefore need not look to the legislative history or to definitions of "security" found elsewhere in tax law and securities law. The Tax Court's decision allowing the Gantners to deduct losses from the sale of stock options under section 1091 ⁴ is affirmed.

II. APPEAL BY...