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USC Title 26 enacted through 2008

§ 424. Definitions and special rules

 
(a)
Corporate reorganizations, liquidations, etc.
 
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 -
 
(1)
the excess of the aggregate fair market value of the shares subject to the option immediately after the substitution or assumption over the aggregate option price of such shares is not more than the excess of the aggregate fair market value of all shares subject to the option immediately before such substitution or assumption over the aggregate option price of such shares, and
 
(2)
the new option or the assumption of the old option does not give the employee additional benefits which he did not have under the old option.
 
For purposes of this subsection, the parent-subsidiary relationship shall be determined at the time of any such transaction under this subsection.
 
(b)
Acquisition of new stock
 
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.
 
(c)
Disposition
 
(1)
In general
 
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 -
 
(A)
a transfer from a decedent to an estate or a transfer by request or inheritance;
 
(B)
an exchange to which section 354, 355, 356, or 1036 (or so much of section 1031 as relates to section 1036) applies; or
 
(C)
a mere pledge or hypothecation.
 
(2)
Joint tenancy
 
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.
 
(3)
Special rule where incentive stock is acquired through use of other statutory option stock
 
(A)
Nonrecognition sections not to apply
 
If -
 
(i)
there is a transfer of statutory option stock in connection with the exercise of any incentive stock option, and
 
(ii)
the applicable holding period requirements (under section 422(a)(1) or 423(a)(1)) are not met before such transfer,
 
then no section referred to in subparagraph (B) of paragraph (1) shall apply to such transfer.
 
(B)
Statutory option stock
 
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.
 
(4)
Transfers between spouses or incident to divorce
 
In the case of any transfer described in subsection (a) of section 1041 -
 
(A)
such transfer shall not be treated as a disposition for purposes of this part, and
 
(B)
the same tax treatment under this part with respect to the transferred property shall apply to the transferee as would have applied to the transferor.
 
(d)
Attribution of stock ownership
 
For purposes of this part, in applying the percentage limitations of sections 422(b)(6) and 423(b)(3) -
 
(1)
the individual with respect to whom such limitation is being determined shall be considered as owning the stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants; and
 
(2)
stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries.
 
(e)
Parent corporation
 
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.
 
(f)
Subsidiary corporation
 
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.
 
(g)
Special rule for applying subsections (e) and (f)
 
In applying subsections (e) and (f) for purposes of section[FN 1] 422(a)(2) and 423(a)(2), there shall be substituted for the term "employer corporation" wherever it appears in subsection (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.
 
So in original. Probably should be "sections".
 
(h)
Modification, extension, or renewal of option
 
(1)
In general
 
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.
 
(2)
Special rule for section 423 options
 
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 -
 
(A)
the fair market value of such stock on the date of the original granting of the option,
 
(B)
the fair market value of such stock on the date of the making of such modification, extension, or renewal, or
 
(C)
the fair market value of such stock at the time of the making of any intervening modification, extension, or renewal.
 
(3)
Definition of modification
 
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 -
 
(A)
attributable to the issuance or assumption of an option under subsection (a);
 
(B)
to permit the option to qualify under section 423(b)(9); or
 
(C)
in the case of an option not immediately exercisable in full, to accelerate the time at which the option may be exercised.
 
(i)
Stockholder approval
 
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.
 
(j)
Cross references
 
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.








Tax Code (Internal Revenue Code) Section Index


U.S. GAAP by Codification Topic
 
105 GAAP Hierarchy
105 GAAP History

205 Presentation of Financial Statements
205-20 Discontinued Operations
210 Balance Sheet
210-20 Offsetting
220 Comprehensive Income
225 Income Statement
225-20 Extraordinary and Unusual Items
230 Statement of Cash Flows
250 Accounting Changes and Error Corrections
260 Earnings per Share
270 Interim Reporting

310 Impairment of a Loan
320 Investment Securities
320 Other-Than-Temporary Impairments, FSP FAS 115-2
320-10-05 Overview of Investments in Other Entities
320-10-35 Reclassification of Investments in Securities
323-10 Equity Method Investments
323-30 Investments in Partnerships and Joint Ventures
325-20 Cost Method Investments
330 Inventory

340-20 Capitalized Advertising Costs
350-20 Goodwill
350-30 Intangibles Other than Goodwill
350-40 Internal-Use Software
350-50 Website Development Costs
360 Property, Plant and Equipment
360-20 Real Estate Sales

410 Asset Retirement and Environmental Obligations
420 Exit or Disposal Cost Obligations
450 Contingencies
450-20 Loss Contingencies
450-30 Gain Contingencies
480 Redeemable Financial Instruments

505-20 Stock Dividends, Stock Splits
505-30 Treasury Stock

605 SEC Staff Accounting Bulletin, Topic 13
605-25 Revenue Recognition - Multiple Element Arrangements

715-30 Defined Benefit Plans - Pension
718 Share-Based Payment
730 Research and Development
730-20 Research and Development Arrangements

805 Business Combinations
810 Consolidation
810 Noncontrolling Interests
810 Consolidation of Variable Interest Entities, SFAS 167

815 Derivatives and Hedging Overview

820 Fair Value Measurements
820 Fair value when the markets are not active, FSP FAS 157-4
825 Fair Value Option

830 Foreign Currency Matters
830-20 Foreign Currency Transactions
830-30 Translation of Financial Statements
835 Interest
835-20 Capitalization of Interest
835-30 Imputation of Interest

840 Leases
840-20 Operating Leases
840-30 Capital Leases
840-40 Sale-Leaseback Transactions
845 Nonmonetary Transactions

855 Subsequent Events
860-20 Sale of Financial Assets, SFAS 166
860-50 Servicing Assets and Liabilities, SFAS 156

985-20 Costs of software to be sold


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Tax Code (Internal Revenue Code) Section Index




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