- 49 -
Finally, even if section 1.83-6(a)(2), Income Tax Regs., is
considered valid, section 1.83-6(a)(3), Income Tax Regs.,
provides an exception to the requirements of section 1.83-
6(a)(2), Income Tax Regs. Despite the statutory timing
provisions of section 83(h), which are also contained in section
1.83-6(a)(1) and (2), Income Tax Regs., section 1.83-6(a)(3),
Income Tax Regs. (hereinafter subparagraph (3)), provides:
(3) Exceptions. Where property is substantially
vested upon transfer, the deduction shall be allowed to
such person in accordance with his method of accounting
(in conformity with sections 446 and 461). * * *
Pursuant to this exception, when the compensatory transfer
consists of property that is substantially vested upon transfer
(which is true in the instant case), the explicit timing
provisions of section 83(h) and the regulations are not
9(...continued)
be inappropriate if the employee's Form W-4 indicates no
withholding was required. Sec. 1.83-6(a)(2), Income Tax Regs.,
would also disallow a deduction for a compensatory transfer of
property to an employee where there was no withholding, even
where the employee reported the income and paid the tax.
Respondent has acknowledged that "employers that failed to deduct
and withhold income tax were denied a deduction even where the
employee reported the income and paid the tax." T.D. 8599, 1995-
2 C.B. 12, 12. (Emphasis added.) Thus, this part of the
regulation was in conflict with respondent's current position
that actual reporting is exactly what sec. 83(h) requires.
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