§ 424. Definitions and special rules
(a)
Corporate reorganizations, liquidations, etc.
For purposes of this part, the term “issuing or assuming a stock option in a transaction to which section
424
(a) applies” means a substitution of a new option for the old option, or an assumption of the old option, by an employer corporation, or a parent or subsidiary of such corporation, by reason of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization, or liquidation, if—
(1)
the excess of the aggregate fair market value of the shares subject to the option immediately after the substitution or assumption over the aggregate option price of such shares is not more than the excess of the aggregate fair market value of all shares subject to the option immediately before such substitution or assumption over the aggregate option price of such shares, and
(2)
the new option or the assumption of the old option does not give the employee additional benefits which he did not have under the old option.
For purposes of this subsection, the parent-subsidiary relationship shall be determined at the time of any such transaction under this subsection.
(b)
Acquisition of new stock
For purposes of this part, if stock is received by an individual in a distribution to which section
305,
354,
355,
356, or
1036 (or so much of section
1031 as relates to section
1036) applies, and such distribution was made with respect to stock transferred to him upon his exercise of the option, such stock shall be considered as having been transferred to him on his exercise of such option. A similar rule shall be applied in the case of a series of such distributions.
(c)
Disposition
(1)
In general
Except as provided in paragraphs (2), (3), and (4), for purposes of this part, the term “disposition” includes a sale, exchange, gift, or a transfer of legal title, but does not include—
(2)
Joint tenancy
The acquisition of a share of stock in the name of the employee and another jointly with the right of survivorship or a subsequent transfer of a share of stock into such joint ownership shall not be deemed a disposition, but a termination of such joint tenancy (except to the extent such employee acquires ownership of such stock) shall be treated as a disposition by him occurring at the time such joint tenancy is terminated.
(3)
Special rule where incentive stock is acquired through use of other statutory option stock
(A)
Nonrecognition sections not to apply
If—
(i)
there is a transfer of statutory option stock in connection with the exercise of any incentive stock option, and
(ii)
the applicable holding period requirements (under section
422
(a)(1) or
423
(a)(1)) are not met before such transfer,
then no section referred to in subparagraph (B) of paragraph (1) shall apply to such transfer.
(4)
Transfers between spouses or incident to divorce
In the case of any transfer described in subsection (a) of section
1041—
(d)
Attribution of stock ownership
For purposes of this part, in applying the percentage limitations of sections
422
(b)(6) and
423
(b)(3)—
(e)
Parent corporation
For purposes of this part, the term “parent corporation” means any corporation (other than the employer corporation) in an unbroken chain of corporations ending with the employer corporation if, at the time of the granting of the option, each of the corporations other than the employer corporation owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
(f)
Subsidiary corporation
For purposes of this part, the term “subsidiary corporation” means any corporation (other than the employer corporation) in an unbroken chain of corporations beginning with the employer corporation if, at the time of the granting of the option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
(g)
Special rule for applying subsections (e) and (f)
In applying subsections (e) and (f) for purposes of section [1] 422(a)(2) and 423(a)(2), there shall be substituted for the term “employer corporation” wherever it appears in subsection (e) and (f) the term “grantor corporation” or the term “corporation issuing or assuming a stock option in a transaction to which section
424
(a) applies” as the case may be.
(h)
Modification, extension, or renewal of option
(1)
In general
For purposes of this part, if the terms of any option to purchase stock are modified, extended, or renewed, such modification, extension, or renewal shall be considered as the granting of a new option.
(2)
Special rule for section
423 options
In the case of the transfer of stock pursuant to the exercise of an option to which section
423 applies and which has been so modified, extended, or renewed, the fair market value of such stock at the time of the granting of the option shall be considered as whichever of the following is the highest—
(i)
Stockholder approval
For purposes of this part, if the grant of an option is subject to approval by stockholders, the date of grant of the option shall be determined as if the option had not been subject to such approval.
(j)
Cross references
For provisions requiring the reporting of certain acts with respect to a qualified stock option, an incentive stock option, options granted under employer stock purchase plans, or a restricted stock option, see section
6039.
[1] So in original. Probably should be “sections”.