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holder of the option to taxation under section 83(a) if the
holder’s rights in the purchased stock are transferable or are
not subject to a substantial risk of forfeiture. Sec. 83(a);
sec. 1.83-7(a), Income Tax Regs., infra p. 15. Under certain
circumstances, however, section 83(c)(3) prevents taxation under
section 83(a) when the sale of the property at a profit could
subject a person to suit under section 16(b). If the seller
could be subject to suit under section 16(b), then “such person’s
rights in such property are (A) subject to a substantial risk of
forfeiture, and (B) not transferable”.
3. Section 16(b)
Section 16(b) provides that a corporate insider who sells
any equity security of the issuer within 6 months after the date
of issuance of any equity security of the issuer to the insider
for a profit must return that profit to the issuing corporation
(“short-swing profit rule”). 15 U.S.C. sec. 78p(b); see Gresham
v. Commissioner, 79 T.C. 322, 328 (1982), affd. 752 F.2d 518
(10th Cir. 1985); Kolom v. Commissioner, supra at 237 n.3; Davis
v. Commissioner, 17 T.C. 549, 550 (1951). Section 16(b), in
relevant part, provides:
For the purpose of preventing the unfair use of
information which may have been obtained by such
beneficial owner, director, or officer by reason of his
relationship to the issuer, any profit realized by him
from any purchase and sale, or any sale and purchase,
of any equity security of such issuer (other than an
exempted security) within any period of less than six
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