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the property are treated as subject to a substantial
risk of forfeiture and as not transferable until the
earlier of (i) the expiration of such six-month period,
or (ii) the first day on which the sale of such
property at a profit will not subject the person to
suit under section 16(b) of the Securities Exchange Act
of 1934. * * *
This specific language was included because the notice for the
final regulations rejected a proposal to extend the initial 6-
month period under section 16(b), even if a suit is still
maintainable after the 6-month period. See Final Regulations:
Property Transferred in Connection with the Performance of
Services, 50 Fed. Reg. 31712, 31713 (Aug. 6, 1985). The notice
explained that the legislative history to section 83(c)(3)
provided only for the 6-month period during which the section
16(b) restriction applies. See id.; H. Rept. 97-201, at 263
(1981), 1981-2 C.B. 352, 404. Given the background of the
regulation and its language, we conclude that section 83(c)(3)
does not apply beyond the initial 6-month period provided in the
section 16(b) restriction.
6. Effect of Section 83(a) on Exercise of Option
The regulations provide:
If section 83(a) does not apply to the grant of such an
option because the option does not have a readily
ascertainable fair market value at the time of grant,
sections 83(a) and 83(b) shall apply at the time the
option is exercised or otherwise disposed of, even
though the fair market value of such option may have
become readily ascertainable before such time. If the
option is exercised, sections 83(a) and 83(b) apply to
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