McLaughlin and Ganey, Circuit Judges, and Nealon, District Judge.
This case involves the length of the holding period of shares of stock. If they were held for less than six months, the gain derived from their sale by the petitioner-taxpayer is to be taxed as ordinary income. If held for more than six months, then the income is to be taxed as capital gain. There is no dispute about the date on which the taxpayer sold the stock. He maintains that he acquired substantial contractual rights to the stock, which later ripened into full ownership, on the day that he mailed his notice of acceptance of his option to the Minnesota Mining and Manufacturing Company, a corporation organized under the laws of Delaware. The Company's main office is in St. Paul, Minnesota. It has a branch office in Ridgefield, New Jersey, where taxpayer resides and was employed as a sales manager by the Company.
The facts are not in dispute. On May 13, 1958, the Company and the taxpayer entered into a stock option purchase agreement. The pertinent provisions of that agreement are as follows:
"The COMPANY desiring to afford EMPLOYEE an opportunity to purchase shares of its Common Stock * * * through the Executive Restricted Stock Option Plan, approved by the stockholders * * * thereby providing the EMPLOYEE with an added incentive to continue his services with the COMPANY and to intensify his interest in the success of the COMPANY.
" NOW, THEREFORE, In consideration of the mutual covenants hereinafter set forth and for good and valuable considerations, the parties hereto have agreed, and do hereby agree, as follows:
"Subject to the terms and conditions of this agreement, the OPTION may be exercised by written notice to the COMPANY, 900 Bush Avenue, St. Paul 6, Minnesota, attention of the Treasurer, which notice shall state the election to exercise the OPTION and the number of shares in respect of which it is being exercised, shall fix a date (not less than (5) business days from the date such notice is received by the COMPANY) for the delivery of the certificate or certificates for said shares, shall be accompanied by a certified or bank cashiers check for payment in full of the purchase price for said shares, shall be signed by the person or persons so exercising the OPTION * * *."
On June 2, 1960, the taxpayer wrote a letter to the treasurer of the Company in which he requested information as to the cost and manner of payment for exercising his stock option and the existing credit in his stock option account. The letter was placed in the Company mail at the Ridgefield branch in Ridgefield, New Jersey.
He received an inter-office memorandum, dated June 6, from the Company. The memorandum informed him that if he wished to exercise his option he should complete the lower part of an enclosed form and forward it to the Company's treasurer in St. Paul, Minnesota, with a check for $3,172.89 representing the balance due on the payment of the 150 shares of stock. The form, in addition to stating that the undersigned elects to exercise his option, contained blank spaces for setting forth when, where and in whose name the stock was to be issued.
On June 14, 1960, the taxpayer placed the completed form in the Company mail at the Ridgefield branch office, accompanied by a check for the balance due. No evidence was presented as to the exact date on which the form and check were received by the Company's treasurer in St. Paul, Minnesota, but the earliest possible date for such receipt was June 15, 1960. The Company recorded the transaction in its books on June 20, 1960, and requested its stock transfer agent to issue 150 shares to the taxpayer. He sold the stock through the New York Stock Exchange on December 15, 1960.
Because the stock option agreement did not expressly provide that written notice of the exercise of the option would become binding on the Company at the time it was placed in the mails, the Tax Court, in determining that there is a deficiency in income tax due from the taxpayer for the year 1960, held that: "The deposit of the election form in the company mail at Ridgefield was not such an effective exercise of the option as would justify the conclusion that petitioner 'acquired' the stock on that day." 46 T.C. 613 (1966).
The rule is well recognized that in computing the period during which stock, obtained as the result of a restricted stock option agreement, was held, the day upon which it was acquired by a taxpayer is to be excluded, and the day on which it was sold is to be included. Sheets v. Selden's Lessee, 69 U.S. (2 Wall.) 177, 190, 17 L. Ed. 822 (1964), E.T. Weir, 10 T.C. 996, 1000-1001, aff'd per curiam 173 F.2d 222 (C.A. 3, 1949); 3B Merten's, Fed. Income Tax § 22.104, pp. 652-653. The Commissioner concedes, as he must, that the taxpayer "acquired" the stock when the taxpayer's acceptance became binding on the Company. See C.I.R. v. LoBue, 256 F.2d 735 (C.A. 3, 1958), affirming 28 T.C. 1317; C.I.R. v. Ogsbury's Estate, 258 F.2d 294, 72 A.L.R. 2d 1348 (C.A. 2, 1958); Swenson v. C.I.R., 309 F.2d 672, 7 A.L.R. 3d 373 (C.A. 8, 1962) -- the last cited case ...