- 10 - Section 421(a) provides an exception to the tax treatment prescribed by section 83 for certain types of employee plans, including employee stock purchase plans such as the Fannie Mae ESPP involved here. Section 421(a) provides, inter alia, that no income will result when a taxpayer acquires stock upon the exer- cise of an option granted under an employee stock purchase plan, as defined in section 423(b). Sec. 421(a)(1). In general, the stock so acquired qualifies as a capital asset in the hands of the taxpayer. When the taxpayer disposes of such stock, the difference between the amount received on such disposition and the taxpayer’s basis is capital in character. See secs. 421, 1001, 1221, 1222; cf. sec. 14a.422A-1, Q&A-1, Temporary Income Tax Regs., 46 Fed. Reg. 61840 (Dec. 21, 1981).9 If, however, the taxpayer disposes of the stock acquired pursuant to an employee stock purchase plan within two years of the granting of the option or within one year after the transfer of the stock to the taxpayer, such disposition is a “disqualifying disposition”. See secs. 421(b), 423(a)(1). In that event, the taxpayer is required to recognize for the year of disposition compensation income that is equal to the amount by which the fair market value of the stock on the exercise date exceeds the option price of such stock. Secs. 83(a), 421(b); sec. 1.83-7(a), Income Tax Regs.; 9See also Humphrey v. Commissioner, T.C. Memo. 2006-242; Svoboda v. Commissioner, supra.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011