[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: 26CFR1.83-8]

[Page 344-345]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.83-8  Applicability of section and transitional rules.

    (a) Scope of section 83. Section 83 is not applicable to--
    (1) A transaction concerning an option to which section 421 applies;
    (2) A transfer to or from a trust described in section 401(a) for 
the benefit of employees or their beneficiaries, or a transfer under an 
annuity plan that meets the requirements of section 404(a)(2) for the 
benefit of employees or their beneficiaries;
    (3) The transfer of an option without a readily ascertainable fair 
market value (as defined in Sec. 1.83-7(b)(1)); or
    (4) The transfer of property pursuant to the exercise of an option 
with a readily ascertainable fair market value at the date of grant. 
Section 83 applies to a transfer to or from a trust or under an annuity 
plan for the benefit of employees, independent contractors, or their 
beneficiaries (except as provided in paragraph (a)(2) of this section), 
but to the extent a transfer is subject to section 402(b) or 403(c), 
section 83 applies to such a transfer only as provided for in section 
402(b) or 403(c).
    (b) Transitional rules--(1) In general. Except as otherwise provided 
in this paragraph, section 83 and the regulations thereunder shall apply 
to property transferred after June 30, 1969.
    (2) Binding written contracts. Section 83 and the regulations 
thereunder shall not apply to property transferred pursuant to a binding 
written contract entered into before April 22, 1969. For purposes of 
this paragraph, a binding written contract means only a written contract 
under which the employee or independent contractor has an enforceable 
right to compel the transfer of property or to obtain damages upon the 
breach of such contract. A contract which provides that a person's right 
to such property is contingent upon the happening of an event (including 
the passage of time) may satisfy the requirements of this paragraph. 
However, if the event itself, or the determination of whether the event 
has occurred, rests with the board of directors or any other individual 
or group acting on behalf of the employer (other than an arbitrator), 
the contract will not be treated as giving the person an enforceable 
right for purposes of this paragraph.

The fact that the board of directors has the power (either expressly or 
impliedly) to terminate employment of an officer pursuant to a contract 
that contemplates the completion of services over a fixed or 
ascertainable period does not negate the existence of a binding written 
contract. Nor will the binding nature of the contract be negated by a 
provision in such contract which allows the employee or independent 
contractor to terminate the contract for any year and receive cash 
instead of property if such election would cause a substantial penalty, 
such as a forfeiture of part or all of the property received in 
connection with the performance of services in an earlier year.
    (3) Options granted before April 22, 1969. Section 83 shall not 
apply to property received upon the exercise of an option granted before 
April 22, 1969.

[[Page 345]]

    (4) Certain written plans. Section 83 shall not apply to property 
transferred (whether or not by the exercise of an option) before May 1, 
1970, pursuant to a written plan adopted and approved before July 1, 
1969. A plan is to be considered as having been adopted and approved 
before July 1, 1969, only if prior to such date the transferor of the 
property undertook an ascertainable course of conduct which under 
applicable State law does not require further approval by the board of 
directors or the stockholders of any corporation. For example, if a 
corporation transfers property to an employee in connection with the 
performance of services pursuant to a plan adopted and approved before 
July 1, 1969, by the board of directors of such corporation, it is not 
necessary that the stockholders have adopted or approved such plan if 
State law does not require such approval. However, such approval is 
necessary if required by the articles of incorporation or the bylaws or 
if, by its terms, such plan will not become effective without such 
approval.
    (5) Certain options granted pursuant to a binding written contract. 
Section 83 shall not apply to property transferred before January 1, 
1973, upon the exercise of an option granted pursuant to a binding 
written contract (as defined in paragraph (b)(2) of this section) 
entered into before April 22, 1969, between a corporation and the 
transferor of such property 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.
    (6) Certain tax free exchanges. Section 83 shall not apply to 
property transferred in exchange for (or pursuant to the exercise of a 
conversion privilege contained in) property transferred before July 1, 
1969, or in exchange for property to which section 83 does not apply (by 
reason of paragraphs (1), (2), (3), or (4) of section 83(i)), 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.

[T.D. 7554, 43 FR 31921, July 24, 1978]