Let's focus on usingtheIRS'sTax Professionals website to locate Tax Codes, Regulations and Official Guidance.

Research theInternalRevenue Codeto apply the Law for Employee Stock Purchase in the DotGismo case.

Sally became an employee of DotGismo, Inc., a privately held firm. On December 15, 20X3, Sally was allowed to buy 20,000 shares of DotGismo stock for $40,000 dollars. When Sally bought the stock, each share was worth $2. DotGismo retained the right to repurchase each share for $2 original purchase price if Sally 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. Sally sold the stock on January 18, 20X6 for $9 per share, after the announcement of a new patent for DotGismo. Advise Sally roughly how much tax she must pay and for what year(s). Assume Sally is in the 35% tax bracket for ordinary income and 15% for long term capital gains.