Internal Revenue Code:Sec. 83. Property transferred in connection with performance of services

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Location in Internal Revenue Code

     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
       

Statute

    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.
      (4) For purposes of determining an individual's basis in 
       property transferred in connection with the performance of 
       services, rules similar to the rules of section 72(w) shall apply.

    (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.
 

Sources

    (Added Pub. L. 91-172, title III, Sec. 321(a), Dec. 30, 1969, 83
    Stat. 588; amended Pub. L. 94-455, title XIX, Sec. 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

                             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.
 

Miscellaneous

                                 AMENDMENTS
    2004 - Pub. L. 108-357, Sec. 906(b). Section 83 (relating to property
    transferred in connection with the performance of services is amended
    by adding after paragraph (3) of subsection (c) the new paragraph (4).
 
      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 (Sec. 1101-1147 and 1171-1177) or title
    XVIII (Sec. 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).''
 

References

                   SECTION REFERRED TO IN OTHER SECTIONS
      This section is referred to in sections 402, 403, 419, 422A, 457,
    1042, 3121 of this title.