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26 U.S.C. § 422 — Incentive stock options
Federal law — U.S. Code and appendices · legal_authorities
**(a) In general** Section 421(a) shall apply with respect to the transfer of a share of stock to an individual pursuant to his exercise of an incentive stock option if—
(1) no disposition of such share is made by him within 2 years from the date of the granting of the option nor within 1 year after the transfer of such share to him, and
(2) at all times during the period beginning on the date of the granting of the option and ending on the day 3 months before the date of such exercise, such individual was an employee of either the corporation granting such option, a parent or subsidiary corporation of such corporation, or a corporation or a parent or subsidiary corporation of such corporation issuing or assuming a stock option in a transaction to which section 424(a) applies.
**(b) Incentive stock option** For purposes of this part, the term “incentive stock option” means an option granted to an individual for any reason connected with his employment by a corporation, if granted by the employer corporation or its parent or subsidiary corporation, to purchase stock of any of such corporations, but only if—
(1) the option is granted pursuant to a plan which includes the aggregate number of shares which may be issued under options and the employees (or class of employees) eligible to receive options, and which is approved by the stockholders of the granting corporation within 12 months before or after the date such plan is adopted;
(2) such option is granted within 10 years from the date such plan is adopted, or the date such plan is approved by the stockholders, whichever is earlier;
(3) such option by its terms is not exercisable after the expiration of 10 years from the date such option is granted;
(4) the option price is not less than the fair market value of t
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Source location: Title 26, Chapter 1, § 422; chapter-001-normal-taxes-and-surtaxes.md
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**(a) In general** Section 421(a) shall apply with respect to the transfer of a share of stock to an individual pursuant to his exercise of an incentive stock option if—
(1) no disposition of such share is made by him within 2 years from the date of the granting of the option nor within 1 year after the transfer of such share to him, and
(2) at all times during the period beginning on the date of the granting of the option and ending on the day 3 months before the date of such exercise, such individual was an employee of either the corporation granting such option, a parent or subsidiary corporation of such corporation, or a corporation or a parent or subsidiary corporation of such corporation issuing or assuming a stock option in a transaction to which section 424(a) applies.
**(b) Incentive stock option** For purposes of this part, the term “incentive stock option” means an option granted to an individual for any reason connected with his employment by a corporation, if granted by the employer corporation or its parent or subsidiary corporation, to purchase stock of any of such corporations, but only if—
(1) the option is granted pursuant to a plan which includes the aggregate number of shares which may be issued under options and the employees (or class of employees) eligible to receive options, and which is approved by the stockholders of the granting corporation within 12 months before or after the date such plan is adopted;
(2) such option is granted within 10 years from the date such plan is adopted, or the date such plan is approved by the stockholders, whichever is earlier;
(3) such option by its terms is not exercisable after the expiration of 10 years from the date such option is granted;
(4) the option price is not less than the fair market value of the stock at the time such option is granted;
(5) such option by its terms is not transferable by such individual otherwise than by will or the laws of descent and distribution, and is exercisable, during his lifetime, only by him; and
(6) such individual, at the time the option is granted, does not own stock possessing more than 10 percent of the total combined voting power of all classes of stock of the employer corporation or of its parent or subsidiary corporation.
Such term shall not include any option if (as of the time the option is granted) the terms of such option provide that it will not be treated as an incentive stock option. Such term shall not include any option if an election is made under section 83(i) with respect to the stock received in connection with the exercise of such option.
**(c) Special rules**
(1) **Good faith efforts to value stock** — If a share of stock is transferred pursuant to the exercise by an individual of an option which would fail to qualify as an incentive stock option under subsection (b) because there was a failure in an attempt, made in good faith, to meet the requirement of subsection (b)(4), the requirement of subsection (b)(4) shall be considered to have been met. To the extent provided in regulations by the Secretary, a similar rule shall apply for purposes of subsection (d).
(2) **Certain disqualifying dispositions where amount realized is less than value at exercise** — If—
(A) an individual who has acquired a share of stock by the exercise of an incentive stock option makes a disposition of such share within either of the periods described in subsection (a)(1), and
(B) such disposition is a sale or exchange with respect to which a loss (if sustained) would be recognized to such individual,
then the amount which is includible in the gross income of such individual, and the amount which is deductible from the income of his employer corporation, as compensation attributable to the exercise of such option shall not exceed the excess (if any) of the amount realized on such sale or exchange over the adjusted basis of such share.
(3) **Certain transfers by insolvent individuals** — If an insolvent individual holds a share of stock acquired pursuant to his exercise of an incentive stock option, and if such share is transferred to a trustee, receiver, or other similar fiduciary in any proceeding under title 11 or any other similar insolvency proceeding, neither such transfer, nor any other transfer of such share for the benefit of his creditors in such proceeding, shall constitute a disposition of such share for purposes of subsection (a)(1).
(4) **Permissible provisions** — An option which meets the requirements of subsection (b) shall be treated as an incentive stock option even if—
(A) the employee may pay for the stock with stock of the corporation granting the option,
(B) the employee has a right to receive property at the time of exercise of the option, or
(C) the option is subject to any condition not inconsistent with the provisions of subsection (b).
Subparagraph (B) shall apply to a transfer of property (other than cash) only if section 83 applies to the property so transferred.
(5) **10-percent shareholder rule** — Subsection (b)(6) shall not apply if at the time such option is granted the option price is at least 110 percent of the fair market value of the stock subject to the option and such option by its terms is not exercisable after the expiration of 5 years from the date such option is granted.
(6) **Special rule when disabled** — For purposes of subsection (a)(2), in the case of an employee who is disabled (within the meaning of section 22(e)(3)), the 3-month period of subsection (a)(2) shall be 1 year.
(7) **Fair market value** — For purposes of this section, the fair market value of stock shall be determined without regard to any restriction other than a restriction which, by its terms, will never lapse.
**(d) $100,000 per year limitation**
(1) **In general** — To the extent that the aggregate fair market value of stock with respect to which incentive stock options (determined without regard to this subsection) are exercisable for the 1st time by any individual during any calendar year (under all plans of the individual’s employer corporation and its parent and subsidiary corporations) exceeds $100,000, such options shall be treated as options which are not incentive stock options.
(2) **Ordering rule** — Paragraph (1) shall be applied by taking options into account in the order in which they were granted.
(3) **Determination of fair market value** — For purposes of paragraph (1), the fair market value of any stock shall be determined as of the time the option with respect to such stock is granted.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Married individuals filing joint returns and surviving spouses** There is hereby imposed on the taxable income of—
(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and
(2) every surviving spouse (as defined in section 2(a)),
a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $36,90015% of taxable income. Over $36,900 but not over $89,150$5,535, plus 28% of the excess over $36,900. Over $89,150 but not over $140,000$20,165, plus 31% of the excess over $89,150. Over $140,000 but not over $250,000$35,928.50, plus 36% of the excess over $140,000. Over $250,000$75,528.50, plus 39.6% of the excess over $250,000.
**(b) Heads of households** There is hereby imposed on the taxable income of every head of a household (as defined in section 2(b)) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $29,60015% of taxable income. Over $29,600 but not over $76,400$4,440, plus 28% of the excess over $29,600. Over $76,400 but not over $127,500$17,544, plus 31% of the excess over $76,400. Over $127,500 but not over $250,000$33,385, plus 36% of the excess over $127,500. Over $250,000$77,485, plus 39.6% of the excess over $250,000.
**(c) Unmarried individuals (other than surviving spouses and heads of households)** There is hereby imposed on the taxable income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 7703) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $22,10015% of taxable income. Over $22,100 but not over $53,50
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 1
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Energy credit**
(1) **In general** — For purposes of section 46, except as provided in paragraphs (1)(B), (2)(B), and (3)(B) of subsection (c), the energy credit for any taxable year is the energy percentage of the basis of each energy property placed in service during such taxable year.
(2) **Energy percentage**
(A) *In general* — Except as provided in paragraphs (6) and (7), the energy percentage is—
(i) 6 percent in the case of—
(I) qualified fuel cell property,
(II) energy property described in clause (i) or (iii) of paragraph (3)(A) but only with respect to property the construction of which begins before January 1, 2025,
(III) energy property described in paragraph (3)(A)(ii),
(IV) qualified small wind energy property,
(V) waste energy recovery property,
(VI) energy storage technology,
(VII) qualified biogas property,
(VIII) microgrid controllers, and
(IX) energy property described in clauses (v) and (vii) of paragraph (3)(A), and
(ii) in the case of any energy property to which clause (i) does not apply, 0 percent.
(B) *Coordination with rehabilitation credit* — The energy percentage shall not apply to that portion of the basis of any property which is attributable to qualified rehabilitation expenditures.
(C) *Nonapplication of increases to energy percentage* — For purposes of energy property described in subparagraph (A)(ii), the energy percentage applicable to such property pursuant to such subparagraph shall not be increased or otherwise adjusted by any provision of this section.
(3) **Energy property** — For purposes of this subpart, the term “energy property” means any property—
(A) which is—
(i) equipment which uses solar energy to generate electricity, to he
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 48
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** If, in connection with the performance of services, property is transferred to any person other than the person for whom such services are performed, the excess of—
(1) the fair market value of such property (determined without regard to any restriction other than a restriction which by its terms will never lapse) at the first time the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, over
(2) the amount (if any) paid for such property,
shall be included in the gross income of the person who performed such services in the first taxable year in which the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture, whichever is applicable. The preceding sentence shall not apply if such person sells or otherwise disposes of such property in an arm’s length transaction before his rights in such property become transferable or not subject to a substantial risk of forfeiture.
**(b) Election to include in gross income in year of transfer**
(1) **In general** — Any person who performs services in connection with which property is transferred to any person may elect to include in his gross income for the taxable year in which such property is transferred, the excess of—
(A) the fair market value of such property at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse), over
(B) the amount (if any) paid for such property.
If such election is made, subsection (a) shall not apply with respect to the transfer of such property, and if such property is subsequently forfeited, no dedu
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 83
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Federal Old-Age and Survivors Insurance Trust Fund** There is hereby created on the books of the Treasury of the United States a trust fund to be known as the “Federal Old-Age and Survivors Insurance Trust Fund”. The Federal Old-Age and Survivors Insurance Trust Fund shall consist of the securities held by the Secretary of the Treasury for the Old-Age Reserve Account and the amount standing to the credit of the Old-Age Reserve Account on the books of the Treasury on January 1, 1940, which securities and amount the Secretary of the Treasury is authorized and directed to transfer to the Federal Old-Age and Survivors Insurance Trust Fund, and, in addition, such gifts and bequests as may be made as provided in subsection (i)(1), and such amounts as may be appropriated to, or deposited in, the Federal Old-Age and Survivors Insurance Trust Fund as hereinafter provided. There is hereby appropriated to the Federal Old-Age and Survivors Insurance Trust Fund for the fiscal year ending June 30, 1941, and for each fiscal year thereafter, out of any moneys in the Treasury not otherwise appropriated, amounts equivalent to 100 per centum of—
(1) the taxes (including interest, penalties, and additions to the taxes) received under subchapter A of chapter 9 of the Internal Revenue Code of 1939 (and covered into the Treasury) which are deposited into the Treasury by collectors of internal revenue before January 1, 1951; and
(2) the taxes certified each month by the Commissioner of Internal Revenue as taxes received under subchapter A of chapter 9 of such Code which are deposited into the Treasury by collectors of internal revenue after December 31, 1950, and before January 1, 1953, with respect to assessments of such taxes made before January 1, 1951; and
(3) the taxes imposed by
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Requirements for qualification** A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section—
(1) if contributions are made to the trust by such employer, or employees, or both, or by another employer who is entitled to deduct his contributions under section 404(a)(3)(B) (relating to deduction for contributions to profit-sharing and stock bonus plans), or by a charitable remainder trust pursuant to a qualified gratuitous transfer (as defined in section 664(g)(1)), for the purpose of distributing to such employees or their beneficiaries the corpus and income of the fund accumulated by the trust in accordance with such plan;
(2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees and their beneficiaries under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees or their beneficiaries (but this paragraph shall not be construed, in the case of a multiemployer plan, to prohibit the return of a contribution within 6 months after the plan administrator determines that the contribution was made by a mistake of fact or law (other than a mistake relating to whether the plan is described in section 401(a) or the trust which is part of such plan is exempt from taxation under section 501(a), or the return of any withdrawal liability payment determined to be an overpayment within 6 months of such determination));
(3) if the plan of which such trust is a part satisfies the requireme
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Effect of qualifying transfer** If a share of stock is transferred to an individual in a transfer in respect of which the requirements of section 422(a) or 423(a) are met—
(1) no income shall result at the time of the transfer of such share to the individual upon his exercise of the option with respect to such share;
(2) no deduction under section 162 (relating to trade or business expenses) shall be allowable at any time to the employer corporation, a parent or subsidiary corporation of such corporation, or a corporation issuing or assuming a stock option in a transaction to which section 424(a) applies, with respect to the share so transferred; and
(3) no amount other than the price paid under the option shall be considered as received by any of such corporations for the share so transferred.
**(b) Effect of disqualifying disposition** If the transfer of a share of stock to an individual pursuant to his exercise of an option would otherwise meet the requirements of section 422(a) or 423(a) except that there is a failure to meet any of the holding period requirements of section 422(a)(1) or 423(a)(1), then any increase in the income of such individual or deduction from the income of his employer corporation for the taxable year in which such exercise occurred attributable to such disposition, shall be treated as an increase in income or a deduction from income in the taxable year of such individual or of such employer corporation in which such disposition occurred. No amount shall be required to be deducted and withheld under chapter 24 with respect to any increase in income attributable to a disposition described in the preceding sentence.
**(c) Exercise by estate**
(1) **In general** — If an option to which this part applies is exercised after the death o
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 421
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Federal law — U.S. Code and appendices · legal_authorities
**(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 “disposi
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 424
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Requirement of reporting** Every corporation—
(1) which in any calendar year transfers to any person a share of stock pursuant to such person’s exercise of an incentive stock option, or
(2) which in any calendar year records (or has by its agent recorded) a transfer of the legal title of a share of stock acquired by the transferor pursuant to his exercise of an option described in section 423(c) (relating to special rule where option price is between 85 percent and 100 percent of value of stock),
shall, for such calendar year, make a return at such time and in such manner, and setting forth such information, as the Secretary may by regulations prescribe.
**(b) Statements to be furnished to persons with respect to whom information is reported** Every corporation making a return under subsection (a) shall furnish to each person whose name is set forth in such return a written statement setting forth such information as the Secretary may by regulations prescribe. The written statement required under the preceding sentence shall be furnished to such person on or before January 31 of the year following the calendar year for which the return under subsection (a) was made.
**(c) Special rules** For purposes of this section—
(1) **Treatment by employer to be determinative** — Any option which the corporation treats as an incentive stock option or an option granted under an employee stock purchase plan shall be deemed to be such an option.
(2) **Subsection (a)(2) applies only to first transfer described therein** — A statement is required by reason of a transfer described in subsection (a)(2) of a share only with respect to the first transfer of such share by the person who exercised the option.
(3) **Identification of stock** — Any corporation which transfers any s
Source: Supplied U.S. Code snapshot — release unconfirmed · 26 U.S.C. § 6039
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Federal law — U.S. Code and appendices · legal_authorities
Page 1477
TITLE 26—INTERNAL REVENUE CODE
§ 422
1958—Subsec. (a). Pub. L. 85–866, § 25, inserted sen-
tence authorizing substitution of ‘‘grantor corpora-
tion’’ or ‘‘corporation issuing or assuming a stock op-
tion in a transaction to which subsection (g) is applica-
ble’’ for ‘‘employer corporation’’.
Subsec. (d)(6)(C). Pub. L. 85–320 added subpar. (C).
Subsec. (d)(1)(A)(ii). Pub. L. 85–866, § 26(a)(1), sub-
stituted ‘‘in the case of a variable price option’’ for ‘‘in
case the purchase price of the stock under the option is
fixed or determinable under a formula in which the
only variable is the value of the stock at any time dur-
ing a period of 6 months which includes the time the
option is exercised’’ and inserted ‘‘fair’’ before ‘‘market
value’’.
Subsec. (d)(7). Pub. L. 85–866, § 26(a)(2), added par. (7).
Statutory Notes and Related Subsidiaries
EFFECTIVE DATE OF 2004 AMENDMENT
Pub. L. 108–357, title II, § 251(d), Oct. 22, 2004, 118 Stat.
1459, provided that: ‘‘The amendments made by this
section [amending this section, sections 423, 3121, 3231,
and 3306 of this title, and section 409 of Title 42, The
Public Health and Welfare] shall apply to stock ac-
quired pursuant to options exercised after the date of
the enactment of this Act [Oct. 22, 2004].’’
Pub. L. 108–357, title VIII, § 905(b), Oct. 22, 2004, 118
Stat. 1653, provided that: ‘‘The amendment made by
this section [amending this section] shall apply to sales
after the date of the enactment of this Act [Oct. 22,
2004].’’
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, se
Source: Supplied 2024 U.S. Code historical extraction · 26 U.S.C. § 422
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