26 U.S.C. § 424
For purposes of this part, the term "issuing or assuming a stock option in a transaction to which section 424(a) applies" means a substitution of a new option for the old option, or an assumption of the old option, by an employer corporation, or a parent or subsidiary of such corporation, by reason of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization, or liquidation, if-
For purposes of this subsection, the parent-subsidiary relationship shall be determined at the time of any such transaction under this subsection.
For purposes of this part, if stock is received by an individual in a distribution to which section 305, 354, 355, 356, or 1036 (or so much of section 1031 as relates to section 1036) applies, and such distribution was made with respect to stock transferred to him upon his exercise of the option, such stock shall be considered as having been transferred to him on his exercise of such option. A similar rule shall be applied in the case of a series of such distributions.
Except as provided in paragraphs (2), (3), and (4), for purposes of this part, the term "disposition" includes a sale, exchange, gift, or a transfer of legal title, but does not include-
The acquisition of a share of stock in the name of the employee and another jointly with the right of survivorship or a subsequent transfer of a share of stock into such joint ownership shall not be deemed a disposition, but a termination of such joint tenancy (except to the extent such employee acquires ownership of such stock) shall be treated as a disposition by him occurring at the time such joint tenancy is terminated.
If-
then no section referred to in subparagraph (B) of paragraph (1) shall apply to such transfer.
For purpose of subparagraph (A), the term "statutory option stock" means any stock acquired through the exercise of an incentive stock option or an option granted under an employee stock purchase plan.
In the case of any transfer described in subsection (a) of section 1041-
For purposes of this part, in applying the percentage limitations of sections 422(b)(6) and 423(b)(3)-
For purposes of this part, the term "parent corporation" means any corporation (other than the employer corporation) in an unbroken chain of corporations ending with the employer corporation if, at the time of the granting of the option, each of the corporations other than the employer corporation owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
For purposes of this part, the term "subsidiary corporation" means any corporation (other than the employer corporation) in an unbroken chain of corporations beginning with the employer corporation if, at the time of the granting of the option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
In applying subsections (e) and (f) for purposes of sections 422(a)(2) and 423(a)(2), there shall be substituted for the term "employer corporation" wherever it appears in subsections (e) and (f) the term "grantor corporation" or the term "corporation issuing or assuming a stock option in a transaction to which section 424(a) applies", as the case may be.
For purposes of this part, if the terms of any option to purchase stock are modified, extended, or renewed, such modification, extension, or renewal shall be considered as the granting of a new option.
In the case of the transfer of stock pursuant to the exercise of an option to which section 423 applies and which has been so modified, extended, or renewed, the fair market value of such stock at the time of the granting of the option shall be considered as whichever of the following is the highest-
The term "modification" means any change in the terms of the option which gives the employee additional benefits under the option, but such term shall not include a change in the terms of the option-
For purposes of this part, if the grant of an option is subject to approval by stockholders, the date of grant of the option shall be determined as if the option had not been subject to such approval.
For provisions requiring the reporting of certain acts with respect to a qualified stock option, an incentive stock option, options granted under employer stock purchase plans, or a restricted stock option, see section 6039.
26 U.S.C. § 424
EDITORIAL NOTES
PRIOR PROVISIONSA prior section 424, added Pub. L. 88-272, title II, §221(a), Feb. 26, 1964, 78 Stat. 69; amended Pub. L. 94-455, title VI, §603(c), title XIV, §1402(b)(1)(F), (2), Oct. 4, 1976, 90 Stat. 1574, 1732, related to restricted stock options, prior to repeal by Pub. L. 101-508, §11801(a) (21), Nov. 5, 1990, 104 Stat. 1388-521. For savings provisions, see section 11821(b) of Pub. L. 101-508, set out as a note under section 45K of this title.
AMENDMENTS2018-Subsec. (g). Pub. L. 115-141 substituted "sections 422(a)(2)" for "section 422(a)(2)".1996-Subsec. (c)(3)(B). Pub. L. 104-188 substituted "an incentive stock option or an option granted under an employee stock purchase plan" for "a qualified stock option, an incentive stock option, an option granted under an employee stock purchase plan, or a restricted stock option".1990- Pub. L. 101-508, §11801(c)(9)(A)(i), renumbered section 425 of this title as this section.Subsec. (a). Pub. L. 101-508, §11801(c)(9)(F)(i), substituted "424(a)" for "425(a)". Subsec. (c)(3)(A)(ii). Pub. L. 101-508, §11801(c)(9)(F) (ii), substituted "422(a)(1) or 423(a)(1)" for "422(a)(1), 422A(a)(1), 423(a)(1), or 424(a)(1)".Subsec. (d). Pub. L. 101-508, §11801(c)(9)(F) (iii), substituted "422(b)(6) and 423(b)(3)" for "422(b)(7), 422A(b)(6), 423(b)(3), and 424(b)(3)".Subsec. (g). Pub. L. 101-508, §11801(c)(9)(F) (iv), substituted "422(a)(2) and 423(a)(2)" for "422(a)(2), 422A(a)(2), 423(a)(2), and 424(a)(2)" and "424(a)" for "425(a)".Subsec. (h)(2). Pub. L. 101-508, §11801(c)(9)(F)(v)(I), added par. (2) and struck out former par. (2) which related to special rules for sections 423 and 424 options and to an exception that such rules would not apply with respect to a modification, extension or renewal of a restricted stock option before Jan. 1, 1964, if the aggregate of the monthly fair market value for 12 consecutive months before date of modification, etc., divided by 12 is an amount less than 80% of the fair market value of such stock on the date of original granting or the date of modification, etc., whichever is higher.Subsec. (h)(3). Pub. L. 101-508, §11801(c)(9)(F)(v) (III), struck out at end "If a restricted stock option is exercisable after the expiration of 10 years from the date such option is granted, subparagraph (B) shall not apply unless the terms of the option are also changed to make it not exercisable after the expiration of such period."Subsec. (h)(3)(B). Pub. L. 101-508, §11801(c)(9)(F)(v) (II), substituted "section 423(b)(9)" for "sections 422(b)(6), 423(b)(9), and 424(b)(2)". 1989-Subsec. (c)(1). Pub. L. 101-239 made technical correction to Pub. L. 100-647, §1018(l)(2), see 1988 Amendment note below.1988-Subsec. (c)(1). Pub. L. 100-647, §1018(l)(2), as amended by Pub. L. 101-239, substituted "paragraphs (2), (3), and (4)" for "paragraphs (2) and (3)".Subsec. (c)(4). Pub. L. 100-647, §1018(l)(1), added par. (4). 1984-Subsec. (h)(3)(B). Pub. L. 98-369 struck out reference to section 422A(b)(5).1983-Subsec. (c)(1). Pub. L. 97-448, §102(j)(6)(B), substituted "paragraphs (2) and (3)" for "paragraph (2)".Subsec. (c)(3). Pub. L. 97-448, §102(j)(6)(A), added par. (3).Subsec. (j). Pub. L. 97-448, §102(j)(5), inserted reference to an incentive stock option.1981-Subsec. (d). Pub. L. 97-34, §251(b)(2), inserted reference to section 422A(b)(6). Subsec. (g). Pub. L. 97-34, §251(b)(3), inserted reference to section 422A(a)(2).Subsec. (h)(3)(B). Pub. L. 97-34, §251(b)(4), inserted reference to section 422A(b)(5).
STATUTORY NOTES AND RELATED SUBSIDIARIES
EFFECTIVE DATE OF 1996 AMENDMENT Amendment by Pub. L. 104-188 effective, except as otherwise expressly provided, as if included in the provision of the Revenue Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which such amendment relates, see section 1702(i) of Pub. L. 104-188, set out as a note under section 38 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT Amendment by Pub. L. 101-239 effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such amendment relates, see section 7817 of Pub. L. 101-239, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100-647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see section 1019(a) of Pub. L. 100-647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT Pub. L. 98-369, div. A, title V, §555(c)(3), July 18, 1984, 98 Stat. 898, as amended by Pub. L. 99-514, title XVIII, §1855(a)(4), Oct. 22, 1986, 100 Stat. 2882, provided that: "The amendment made by subsection (b) [amending this section] shall apply with respect to modifications of options after March 20, 1984."
EFFECTIVE DATE OF 1983 AMENDMENT Pub. L. 97-448, title I, §102(j)(6), Jan. 12, 1983, 96 Stat. 2373, provided that the amendment made by that section is effective only with respect to transfers after March 15, 1982.Amendment by section 102(j)(5) of title I of Pub. L. 97-448 effective, except as otherwise provided, as if it had been included in the provision of the Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such amendment relates, see section 109 of Pub. L. 97-448, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT Amendment by Pub. L. 97-34 applicable with respect to options granted on or after Jan. 1, 1976, and exercised on or after Jan. 1, 1981, or outstanding on Jan. 1, 1981, or granted on or after Jan. 1, 1976, and outstanding Aug. 13, 1981, see section 251(c) of Pub. L. 97-34, set out as an Effective Date note under section 422 of this title.
EFFECTIVE DATESection applicable to taxable years ending after Dec. 31, 1963, except in cases of options granted after Dec. 31, 1963, and before Jan. 1, 1965, in which case par. (1) of subsec. (h) shall not apply to any change in the terms of such option made before Jan. 1, 1965, to permit such option to qualify under pars. (3), (4), and (5) of section 422(b), see section 221(e) of Pub. L. 88-272, set out as an Effective Date of 1964 Amendment note under section 421 of this title.
SAVINGS PROVISIONFor provisions that nothing in amendment by Pub. L. 101-508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liability for tax for periods ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508, set out as a note under section 45K of this title.
- corporation
- The term "corporation" includes associations, joint-stock companies, and insurance companies.
- stock
- The term "stock" includes shares in an association, joint-stock company, or insurance company.
- transaction
- The term "transaction" includes a series of transactions.