Exercise of Option to Purchase Is a 6166(g)(1)(A) Sale

Exercise of an Option to Purchase Constitutes a "Sale" and Also a "Disposition" for Purposes of 6166(g)(1)(A)

See PLR 9149015 (Aug-30-1991). The contemplated exercise of an option to purchase section 6166 assets would constitute a section 6166(g)(1)(A) sale and disposition of those assets, because the option, if exercised, required the heir, A, to purchase and pay for the stock under the terms set forth in the Decedent's will. In addition, the section 6166(g)(1)(D) exception would not apply because the transfer would not be caused by reason of death. Since the contemplated option exercise value would exceed the 50% threshold of section 6166(g)(1)(A), the section 6166 election would automatically terminate on the date the option was exercised.

Note that this was a two-step analysis. First, there was a contemplated sale. Second, the transfer occurring by reason of the sale would not be by reason of death, and would therefore not qualify as a transfer under 6166(g)(1)(D) that is exempt from 6166(g)(1)(A).