In writing a tax memo begin the discussion of the law with at least one paragraph on the relevant Code language. Pinpoint the location of the relevant language as precisely as possible. After each relevant Code section, follow with the relevant Treasury Regulations. Then briefly in separate paragraphs briefly describe any relevant cases or Revenue Rulings. Write clearly and concisely.

For each of the following problems, do not just answer the question asked in the problem.

Identify the legal issue(s), conclusion, list of relevant authorities, discussion of the law, and the application of the law.Use these subheadings, as it is not enough just to describe the law.The most important parts of the memo are the issue statement(s) and the application of the law to the problem facts, which is sometimes contained under the heading of reasoning.The application should integrate reference to every source of law previously discussed.

CASE FACTS:

Stacey became an employee of DotGismo, Inc., a privately held firm. On December 15, 20X3, Stacey was allowed to buy 20,000 shares of DotGismo stock for $40,000 dollars.At that time when Stacey bought the stock, each share was worth $2. DotGismo retains the right to repurchase each share for $2 original purchase price if Stacey leaves DotGismo at any time during the next two years for any reason.DotGismo stock increased to $5 per share in December 15, 20X5, when the two-year restriction ended. Stacey sold the stock on January 18, 20X6 for $9 per share, after the announcement of a new patent for DotGismo. Advise Stacey roughly how much tax must be paid and for what year(s).Assume Stacey is in the 35% tax bracket for ordinary income and 15% for long term capital gains.