[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.83-7T]

[Page 343-344]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.83-7T  Taxation of nonqualified stock options (Temporary).

    (a) In general. If there is granted to an employee or independent 
contractor (or beneficiary thereof) in connection with the performance 
of services, an option to which section 421 (relating generally to 
certain qualified and other options) does not apply, section 83(a) shall 
apply to such grant if the option has a readily ascertainable fair 
market value (determined in accordance with paragraph (b) of this 
section) at the time the option is granted. The person who performed 
such services realizes compensation upon such grant at the time and in 
the amount determined under section 83(a). If section 83(a) does not 
apply to the grant of such an option because the option does not have a 
readily ascertainable fair market value at the time of grant, sections 
83(a) and 83(b) shall apply at the time the option is exercised or 
otherwise disposed of, even though the fair market value of such option 
may have become readily ascertainable before such time. If the option is 
exercised, sections 83(a) and 83(b) apply to the transfer of property 
pursuant to such exercise, and the employee or independent contractor 
realizes compensation upon such transfer at the time and in the amount 
determined under section 83(a) or 83(b). If the option is sold or 
otherwise disposed of in an arm's length transaction, sections 83(a) and 
83(b) apply to the transfer of money or other property received in the 
same manner as sections 83(a) and 83(b) would have applied to the

[[Page 344]]

transfer of property pursuant to an exercise of the option. The 
preceding sentence does not apply to a sale or other disposition of the 
option to a person related to the service provider that occurs on or 
after July 2, 2003. For this purpose, a person is related to the service 
provider if--
    (1) The person and the service provider bear a relationship to each 
other that is specified in section 267(b) or 707(b)(1), subject to the 
modifications that the language ``20 percent'' is used instead of ``50 
percent'' each place it appears in sections 267(b) and 707(b)(1), and 
section 267(c)(4) is applied as if the family of an individual includes 
the spouse of any member of the family; or
    (2) The person and the service provider are engaged in trades or 
businesses under common control (within the meaning of section 52(a) and 
(b)); provided that a person is not related to the service provider if 
the person is the service recipient with respect to the option or the 
grantor of the option.
    (b) and (c) For further guidance, see Sec. 1.83-7(b) and (c).
    (d) Effective dates. This section applies on or after July 2, 2003. 
For dates before July 2, 2003 see Sec. 1.83-7.

[T.D. 9067, 68 FR 39454, July 2, 2003]