
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC83]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
               Subchapter B--Computation of Taxable Income
 
          PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
 
Sec. 83. Property transferred in connection with performance of 
        services
        

(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 deduction shall be allowed in respect of 
    such forfeiture.

                            (2) Election

        An election under paragraph (1) with respect to any transfer of 
    property shall be made in such manner as the Secretary prescribes 
    and shall be made not later than 30 days after the date of such 
    transfer. Such election may not be revoked except with the consent 
    of the Secretary.

(c) Special rules

    For purposes of this section--

                 (1) Substantial risk of forfeiture

        The rights of a person in property are subject to a substantial 
    risk of forfeiture if such person's rights to full enjoyment of such 
    property are conditioned upon the future performance of substantial 
    services by any individual.

                   (2) Transferability of property

        The rights of a person in property are transferable only if the 
    rights in such property of any transferee are not subject to a 
    substantial risk of forfeiture.

    (3) Sales which may give rise to suit under section 16(b) of 
                     the Securities Exchange Act of 1934

        So long as the sale of property at a profit could subject a 
    person to suit under section 16(b) of the Securities Exchange Act of 
    1934, such person's rights in such property are--
            (A) subject to a substantial risk of forfeiture, and
            (B) not transferable.

(d) Certain restrictions which will never lapse

                            (1) Valuation

        In the case of property subject to a restriction which by its 
    terms will never lapse, and which allows the transferee to sell such 
    property only at a price determined under a formula, the price so 
    determined shall be deemed to be the fair market value of the 
    property unless established to the contrary by the Secretary, and 
    the burden of proof shall be on the Secretary with respect to such 
    value.

                          (2) Cancellation

        If, in the case of property subject to a restriction which by 
    its terms will never lapse, the restriction is canceled, then, 
    unless the taxpayer establishes--
            (A) that such cancellation was not compensatory, and
            (B) that the person, if any, who would be allowed a 
        deduction if the cancellation were treated as compensatory, will 
        treat the transaction as not compensatory, as evidenced in such 
        manner as the Secretary shall prescribe by regulations,

    the excess of the fair market value of the property (computed 
    without regard to the restrictions) at the time of cancellation over 
    the sum of--
            (C) the fair market value of such property (computed by 
        taking the restriction into account) immediately before the 
        cancellation, and
            (D) the amount, if any, paid for the cancellation,

    shall be treated as compensation for the taxable year in which such 
    cancellation occurs.

(e) Applicability of section

    This section shall not apply to--
        (1) a transaction to which section 421 applies,
        (2) a transfer to or from a trust described in section 401(a) or 
    a transfer under an annuity plan which meets the requirements of 
    section 404(a)(2),
        (3) the transfer of an option without a readily ascertainable 
    fair market value,
        (4) the transfer of property pursuant to the exercise of an 
    option with a readily ascertainable fair market value at the date of 
    grant, or
        (5) group-term life insurance to which section 79 applies.

(f) Holding period

    In determining the period for which the taxpayer has held property 
to which subsection (a) applies, there shall be included only the period 
beginning at the first time his rights in such property are transferable 
or are not subject to a substantial risk of forfeiture, whichever occurs 
earlier.

(g) Certain exchanges

    If property to which subsection (a) applies is exchanged for 
property subject to restrictions and conditions substantially similar to 
those to which the property given in such exchange was subject, and if 
section 354, 355, 356, or 1036 (or so much of section 1031 as relates to 
section 1036) applied to such exchange, or if such exchange was pursuant 
to the exercise of a conversion privilege--
        (1) such exchange shall be disregarded for purposes of 
    subsection (a), and
        (2) the property received shall be treated as property to which 
    subsection (a) applies.

(h) Deduction by employer

    In the case of a transfer of property to which this section applies 
or a cancellation of a restriction described in subsection (d), there 
shall be allowed as a deduction under section 162, to the person for 
whom were performed the services in connection with which such property 
was transferred, an amount equal to the amount included under subsection 
(a), (b), or (d)(2) in the gross income of the person who performed such 
services. Such deduction shall be allowed for the taxable year of such 
person in which or with which ends the taxable year in which such amount 
is included in the gross income of the person who performed such 
services.

(Added Pub. L. 91-172, title III, Sec. 321(a), Dec. 30, 1969, 83 Stat. 
588; amended Pub. L. 94-455, title XIX, Secs. 1901(a)(15), 
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1765, 1834; Pub. L. 97-34, title 
II, Sec. 252(a), Aug. 13, 1981, 95 Stat. 260; Pub. L. 97-448, title I, 
Sec. 102(k)(1), Jan. 12, 1983, 96 Stat. 2374; Pub. L. 98-369, div. A, 
title II, Sec. 223(c), July 18, 1984, 98 Stat. 775; Pub. L. 99-514, 
title XVIII, Sec. 1827(e), Oct. 22, 1986, 100 Stat. 2851; Pub. L. 101-
508, title XI, Sec. 11801(a)(5), Nov. 5, 1990, 104 Stat. 1388-520.)

                       References in Text

    Section 16(b) of the Securities Exchange Act of 1934, referred to in 
subsec. (c)(3), is classified to section 78p(b) of Title 15, Commerce 
and Trade.


                               Amendments

    1990--Subsec. (i). Pub. L. 101-508 struck out subsec. (i) 
``Transition rules'' which read as follows: ``This section shall apply 
to property transferred after June 30, 1969, except that this section 
shall not apply to property transferred--
        ``(1) pursuant to a binding written contract entered into before 
    April 22, 1969,
        ``(2) upon the exercise of an option granted before April 22, 
    1969,
        ``(3) before May 1, 1970, pursuant to a written plan adopted and 
    approved before July 1, 1969,
        ``(4) before January 1, 1973, upon the exercise of an option 
    granted pursuant to a binding written contract entered into before 
    April 22, 1969, between a corporation and the transferor requiring 
    the transferor to grant options to employees of such corporation (or 
    a subsidiary of such corporation) to purchase a determinable number 
    of shares of stock of such corporation, but only if the transferee 
    was an employee of such corporation (or a subsidiary of such 
    corporation) on or before April 22, 1969, or
        ``(5) in exchange for (or pursuant to the exercise of a 
    conversion privilege contained in) property transferred before July 
    1, 1969, or for property to which this section does not apply (by 
    reason of paragraphs (1), (2), (3), or (4)), if section 354, 355, 
    356, or 1036 (or so much of section 1031 as relates to section 1036) 
    applies, or if gain or loss is not otherwise required to be 
    recognized upon the exercise of such conversion privilege, and if 
    the property received in such exchange is subject to restrictions 
    and conditions substantially similar to those to which the property 
    given in such exchange was subject.''
    1986--Subsec. (e)(5). Pub. L. 99-514 struck out ``the cost of'' 
before ``group-life insurance''.
    1984--Subsec. (e)(5). Pub. L. 98-369 added par. (5).
    1983--Subsec. (c)(3). Pub. L. 97-448 substituted ``Securities 
Exchange Act of 1934'' for ``Securities and Exchange Act of 1934'' in 
heading and text.
    1981--Subsec. (c)(3). Pub. L. 97-34 added par. (3).
    1976--Subsec. (b)(2). Pub. L. 94-455, Sec. 1901(a)(15), struck out 
``(or, if later, 30 days after the date of the enactment of the Tax 
Reform Act of 1969)'' after ``after the date of such transfer'', and 
Sec. 1906(b)(13)(A), ``or his delegate'' after ``Secretary'' wherever 
appearing.
    Subsec. (d)(1), (2)(B). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck 
out ``or his delegate'' after ``Secretary''.


                    Effective Date of 1986 Amendment

    Amendment by Pub. L. 99-514 effective, except as otherwise provided, 
as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 
98-369, div. A, to which such amendment relates, see section 1881 of 
Pub. L. 99-514, set out as a note under section 48 of this title.


                    Effective Date of 1984 Amendment

    Amendment by Pub. L. 98-369 applicable to taxable years beginning 
after Dec. 31, 1983, see section 223(d)(1) of Pub. L. 98-369, set out as 
a note under section 79 of this title.


                    Effective Date of 1983 Amendment

    Amendment by 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

    Section 252(c) of Pub. L. 97-34, as amended by Pub. L. 97-448, title 
I, Sec. 102(k)(2), 96 Stat. 2374, provided that: ``The amendment made by 
subsection (a) [amending this section] and the provisions of subsection 
(b) [set out below] shall apply to transfers after December 31, 1981.''


                    Effective Date of 1976 Amendment

    Amendment by section 1901(a)(15) of Pub. L. 94-455 applicable with 
respect to taxable years beginning after Dec. 31, 1976, see section 
1901(d) of Pub. L. 94-455, set out as a note under section 2 of this 
title.


                             Effective Date

    Section 321(d) of Pub. L. 91-172 provided that: ``The amendments 
made by subsections (a) and (c) [amending sections 402, 403, and 404 of 
this title] shall apply to taxable years ending after June 30, 1969. The 
amendments made by subsection (b) [enacting this section] shall apply 
with respect to contributions made and premiums paid after August 1, 
1969.''


                            Savings Provision

    For 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 29 of this 
title.


           Plan Amendments Not Required Until January 1, 1989

    For provisions directing that if any amendments made by subtitle A 
or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or title XVIII 
[Secs. 1800-1899A] of Pub. L. 99-514 require an amendment to any plan, 
such plan amendment shall not be required to be made before the first 
plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. 
L. 99-514, as amended, set out as a note under section 401 of this 
title.


     Application of Amendments Made by Section 252 of Pub. L. 97-34

    Section 1879(p) of Pub. L. 99-514, as amended by Pub. L. 100-647, 
title I, Sec. 1018(q)(3), Nov. 10, 1988, 102 Stat. 3585, provided that:
    ``(1) Notwithstanding subsection (c) of section 252 of the Economic 
Recovery Tax Act of 1981 [section 252(c) of Pub. L. 97-34, set out 
above], the amendment made by subsection (a) of such section 252 
[amending this section] (and the provisions of subsection (b) of such 
section 252 [set out below]) shall apply to any transfer of stock to any 
person if--
        ``(A) such transfer occurred in November or December of 1973 and 
    was pursuant to the exercise of an option granted in November or 
    December of 1971,
        ``(B) in December 1973 the corporation granting the option was 
    acquired by another corporation in a transaction qualifying as a 
    reorganization under section 368 of the Internal Revenue Code of 
    1954 [now 1986],
        ``(C) the fair market value (as of July 1, 1974) of the stock 
    received by such person in the reorganization in exchange for the 
    stock transferred to him pursuant to the exercise of such option was 
    less than 50 percent of the fair market value of the stock so 
    received (as of December 4, 1973),
        ``(D) in 1975 or 1976 such person sold substantially all of the 
    stock received in such reorganization, and
        ``(E) such person makes an election under this section at such 
    time and in such manner as the Secretary of the Treasury or his 
    delegate shall prescribe.
    ``(2) Limitation on amount of benefit.--Paragraph (1) shall not 
apply to transfers with respect to any employee to the extent that the 
application of paragraph (1) with respect to such employee would (but 
for this paragraph) result in a reduction in liability for income tax 
with respect to such employee for all taxable years in excess of 
$100,000 (determined without regard to any interest).
    ``(3) Statute of limitations.--
        ``(A) Overpayments.--If refund or credit of any overpayment of 
    tax resulting from the application of paragraph (1) is prevented on 
    the date of the enactment of this Act [Oct. 22, 1986] (or at any 
    time within 6 months after such date of enactment) by the operation 
    of any law or rule of law, refund or credit of such overpayment (to 
    the extent attributable to the application of paragraph (1)) may, 
    nevertheless, be made or allowed if claim therefor is filed before 
    the close of such 6-month period.
        ``(B) Deficiencies.--If the assessment of any deficiency of tax 
    resulting from the application of paragraph (1) is prevented on the 
    date of the enactment of this Act [Oct. 22, 1986] (or at any time 
    within 6 months after such date of enactment) by the operation of 
    any law or rule of law, assessment of such deficiency (to the extent 
    attributable to the application of paragraph (1)) may, nevertheless, 
    be made within such 6-month period.''


             Time for Making Certain Section 83(b) Elections

    Section 556 of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec. 2, 
title XVIII, Sec. 1855(b), Oct. 22, 1986, 100 Stat. 2095, 2882, provided 
that: ``In the case of any transfer of property in connection with the 
performance of services on or before November 18, 1982, the election 
permitted by section 83(b) of the Internal Revenue Code of 1986 
[formerly I.R.C. 1954] may be made, notwithstanding paragraph (2) of 
such section 83(b), with the income tax return for any taxable year 
ending after July 18, 1984, and beginning before the date of the 
enactment of the Tax Reform Act of 1986 [Oct. 22, 1986 if--
        ``(1) the amount paid for such property was not less than its 
    fair market value at the time of transfer (determined without regard 
    to any restriction other than a restriction which by its terms will 
    never lapse), and
        ``(2) the election is consented to by the person transferring 
    such property.
The election shall contain that information required by the Secretary of 
the Treasury or his delegate for elections permitted by such section 
83(b). The period for assessing any tax attributable to a transfer of 
property which is the subject of an election made pursuant to this 
section shall not expire before the date which is 3 years after the date 
such election was made.''


 Property Subject to Transfer Restrictions To Comply With ``Pooling-of-
                      Interests Accounting'' Rules

    Section 252(b) of Pub. L. 97-34, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided, effective with respect 
to taxable years ending after Dec. 31, 1981, that: ``For purposes of 
section 83 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], 
property is subject to substantial risk of forfeiture and is not 
transferable so long as such property is subject to a restriction on 
transfer to comply with the ``Pooling-of-Interests Accounting'' rules 
set forth in Accounting Series Release Numbered 130 ((10/5/72) 37 FR 
20937; 17 CFR 211.130) and Accounting Series Release Numbered 135 ((1/
18/73) 38 FR 1734; 17 CFR 211.135).''

                  Section Referred to in Other Sections

    This section is referred to in sections 402, 403, 419, 422A, 457, 
1042, 3121 of this title.
