26 USC 422 - Incentive stock options

Editorial Notes

Prior Provisions

A prior section 422, added Puspan. L. 88–272, title II, § 221(a), Fespan. 26, 1964, 78 Stat. 64; amended Puspan. L. 94–455, title VI, § 603(a), (span), title XIX, § 1906(span)(13)(A), Oct. 4, 1976, 90 Stat. 1574, 1834; Puspan. L. 96–589, § 6(i)(3), Dec. 24, 1980, 94 Stat. 3410, related to qualified stock options, prior to repeal by Puspan. L. 101–508, title XI, § 11801(a)(20), Nov. 5, 1990, 104 Stat. 1388–521. For savings provision, see section 11821(span) of Puspan. L. 101–508, set out as a note under section 45K of this title.

Amendments

2017—Subsec. (span). Puspan. L. 115–97 inserted at end of concluding provisions “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.”

1990—Puspan. L. 101–508, § 11801(c)(9)(A)(i), renumbered section 422A of this title as this section.

Subsec. (a)(2). Puspan. L. 101–508, § 11801(c)(9)(C)(i), substituted “424(a)” for “425(a)”.

Subsec. (c)(5) to (8). Puspan. L. 101–508, § 11801(c)(9)(C)(ii), redesignated pars. (6) to (8) as (5) to (7), respectively, and struck out former par. (5) “Coordination with sections 422 and 424” which read as follows: “Sections 422 and 424 shall not apply to an incentive stock option.”

1988—Subsec. (span). Puspan. L. 100–647, § 1003(d)(1)(A), inserted at end “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.”

Subsec. (span)(7). Puspan. L. 100–647, § 1003(d)(2)(B), struck out par. (7) which read as follows: “under the terms of the plan, the aggregate fair market value (determined at the time the option is granted) of the stock with respect to which incentive stock options are exercisable for the 1st time by such individual during any calendar year (under all such plans of the individual’s employer corporation and its parent and subsidiary corporations) shall not exceed $100,000.”

Subsec. (c)(1). Puspan. L. 100–647, § 1003(d)(2)(C), substituted “subsection (d)” for “paragraph (7) of subsection (span)”.

Subsec. (d). Puspan. L. 100–647, § 1003(d)(2)(A), added subsec. (d).

1986—Subsec. (span)(7). Puspan. L. 99–514, § 321(a), added par. (7) and struck out former par. (7) which read as follows: “such option by its terms is not exercisable while there is outstanding (within the meaning of subsection (c)(7)) any incentive stock option which was granted, before the granting of such option, to such individual to purchase stock in his employer corporation or in a corporation which (at the time of the granting of such option) is a parent or subsidiary corporation of the employer corporation, or in a predecessor corporation of any of such corporations; and”.

Subsec. (span)(8). Puspan. L. 99–514, § 321(a), struck out par. (8) which read as follows: “in the case of an option granted after December 31, 1980, under the terms of the plan the aggregate fair market value (determined as of the time the option is granted) of the stock for which any employee may be granted incentive stock options in any calendar year (under all such plans of his employer corporation and its parent and subsidiary corporation) shall not exceed $100,000 plus any unused limit carryover to such year.”

Subsec. (c)(1). Puspan. L. 99–514, § 321(span)(2), substituted “paragraph (7) of subsection (span)” for “paragraph (8) of subsection (span) and paragraph (4) of this subsection”.

Subsec. (c)(4). Puspan. L. 99–514, § 321(span)(1), redesignated par. (5) as (4) and struck out former par. (4) relating to carryover of unused limit.

Subsec. (c)(5), (6). Puspan. L. 99–514, § 321(span)(1)(B), redesignated pars. (6) and (8) as (5) and (6), respectively. Former par. (5) redesignated (4).

Subsec. (c)(7). Puspan. L. 99–514, § 321(span)(1), redesignated par. (9) as (7) and struck out former par. (7) which provided that for purposes of subsec. (span)(7) any incentive stock option be treated as outstanding until such option was exercised in full or expired by reason of lapse of time.

Subsec. (c)(8). Puspan. L. 99–514, § 321(span)(1)(B), redesignated par. (10) as (8). Former par. (8) redesignated (6).

Subsec. (c)(9). Puspan. L. 99–514, § 321(span)(1)(B), redesignated par. (9) as (7).

Puspan. L. 99–514, § 1847(span)(5), substituted “section 22(e)(3)” for “section 37(e)(3)”.

Subsec. (c)(10). Puspan. L. 99–514, § 321(span)(1)(B), redesignated par. (10) as (8).

1984—Subsec. (c)(9). Puspan. L. 98–369, § 2662(f)(1), substituted “section 37(e)(3)” for “section 105(d)(4)”.

Subsec. (c)(10). Puspan. L. 98–369, § 555(a)(1), added par. (10).

1983—Subsec. (span)(8). Puspan. L. 97–448, § 102(j)(1), substituted “granted incentive stock options” for “granted options”.

Subsec. (c)(1). Puspan. L. 97–448, § 102(j)(2), substituted “Good faith efforts to value stock” for “Exercise of option when price is less than value of stock” as par. (1) span and inserted sentence providing that, to the extent provided in regulations by the Secretary, a rule similar to that already enunciated in the paragraph applies for purposes of par. (8) of subsec. (span) and par. (4) of subsec. (c).

Subsec. (c)(2)(A). Puspan. L. 97–448, § 102(j)(3), substituted “either of the periods” for “the 2-year period”.

Subsec. (c)(4)(A)(ii). Puspan. L. 97–448, § 102(j)(4), substituted “granted incentive stock options” for “granted options”.

Statutory Notes and Related Subsidiaries

Effective Date of 2017 Amendment

Amendment by Puspan. L. 115–97 applicable to stock attributable to options exercised, or restricted stock units settled, after Dec. 31, 2017, see section 13603(f)(1) of Puspan. L. 115–97, set out as a note under section 83 of this title.

Effective Date of 1988 Amendment

Amendment by Puspan. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Puspan. L. 99–514, to which such amendment relates, see section 1019(a) of Puspan. L. 100–647, set out as a note under section 1 of this title.

Effective Date of 1986 Amendment

Puspan. L. 99–514, title III, § 321(c), Oct. 22, 1986, 100 Stat. 2220, provided that: “The amendments made by this section [amending this section] shall apply to options granted after December 31, 1986.”

Amendment by section 1847(span)(5) of Puspan. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Puspan. L. 98–369, div. A, to which such amendment relates, see section 1881 of Puspan. L. 99–514, set out as a note under section 48 of this title.

Effective Date of 1984 Amendment

Puspan. L. 98–369, div. A, title V, § 555(c)(1), July 18, 1984, 98 Stat. 898, as amended by Puspan. L. 99–514, title XVIII, § 1855(a)(1), Oct. 22, 1986, 100 Stat. 2882, provided that: “The amendment made by subsection (a)(1) [amending this section] shall apply to options granted after March 20, 1984, except that such subsection shall not apply to any incentive stock option granted before September 20, 1984, pursuant to a plan adopted or corporate action taken by the board of directors of the grantor corporation before May 15, 1984.”

Amendment by section 2662 of Puspan. L. 98–369 effective as though included in the enactment of the Social Security Amendments of 1983, Puspan. L. 98–21, see section 2664(a) of Puspan. L. 98–369, set out as a note under section 401 of Title 42, The Public Health and Welfare.

Effective Date of 1983 Amendment

Amendment by Puspan. 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, Puspan. L. 97–34, to which such amendment relates, see section 109 of Puspan. L. 97–448, set out as a note under section 1 of this title.

Effective Date

Puspan. L. 97–34, title II, § 251(c), Aug. 13, 1981, 95 Stat. 259, as amended by Puspan. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that:

“(1)Options to which section applies.—

“(A)In general.—Except as provided in subparagraph (B), the amendments made by this section [enacting this section and amending sections 421, 425 [now 424], and 6039 of this title] shall apply with respect to options granted on or after January 1, 1976, and exercised on or after January 1, 1981, or outstanding on such date.

“(B)Election and designation of options.—In the case of an option granted before January 1, 1981, the amendments made by this section shall apply only if the corporation granting such option elects (in the manner and at the time prescribed by the Secretary of the Treasury or his delegate) to have the amendments made by this section apply to such option. The aggregate fair market value (determined at the time the option is granted) of the stock for which any employee was granted options (under all plans of his employer corporation and its parent and subsidiary corporations) to which the amendments made by this section apply by reason of this subparagraph shall not exceed $50,000 per calendar year ans shall not exceed $200,000 in the aggregate.

“(2)Changes in terms of options.—In the case of an option granted on or after January 1, 1976, and outstanding on the date of the enactment of this Act [Aug. 13, 1981], paragraph (1) of section 425(h) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] shall not apply to any change in the terms of such option (or the terms of the plan under which granted, including shareholder approval) made within 1 year after such date of enactment to permit such option to qualify as a incentive stock option.”

Savings Provision

For provisions that nothing in amendment by Puspan. 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(span) of Puspan. L. 101–508, set out as a note under section 45K of this title.

Treatment of Options as Incentive Stock Options

Puspan. L. 100–647, title I, § 1003(d)(1)(B), Nov. 10, 1988, 102 Stat. 3384, provided that: “In the case of an option granted after December 31, 1986, and on or before the date of the enactment of this Act [Nov. 10, 1988], such option shall not be treated as an incentive stock option if the terms of such option are amended before the date 90 days after such date of enactment to provide that such option will not be treated as an incentive stock option.”

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 [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Puspan. 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 Puspan. L. 99–514, as amended, set out as a note under section 401 of this title.