makbo wrote:There has to be an actual transfer of property to make 83(b) election. Granting an option is not a transfer of property, but an exercise of an option is a transfer of property. Allowing exercise of unvested options is not something every company allows, and of course there are downside risks.
I agree that the grant of an option to purchase stock does not constitute a transfer of the
stock itself.
However, I would argue that the
option itself is property, and that the granting of such an option is a transfer of property (1) in a broad, technical sense, and (2) under section 83 generally.
The grant of an option to purchase certain property does not constitute a transfer of such property. However, see §1.83-7 for the extent to which the grant of the option itself is subject to section 83.
--from 26 CFR sec. 1.83-3(a) (emphasis added).
Here is an example of how the mere
grant of an option can constitute a transfer of property under section 83:
If there is granted to an employee or independent contractor (or beneficiary thereof) in connection with the performance of services, an option to which section 421 (relating generally to certain qualified and other options) does not apply, section 83(a) shall apply to such grant if the option has a readily ascertainable fair market value (determined in accordance with paragraph (b) of this section) at the time the option is granted. The person who performed such services realizes compensation upon such grant at the time and in the amount determined under section 83(a). 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.
--from 26 CFR sec. 1.83-7(a) (emphasis added).
Regarding the
exercise of the option, the reg states in part:
If the option is exercised, sections 83(a) and 83(b) apply to the transfer of property pursuant to such exercise, and the employee or independent contractor realizes compensation upon such transfer at the time and in the amount determined under section 83(a) or 83(b).
--from 26 CFR sec. 1.83-7(a) (emphasis added).
An option is property, and some options themselves can be sold. Further, the regulation states (in part):
If the option is sold or otherwise disposed of in an arm's length transaction, sections 83(a) and 83(b) apply to the transfer of money or other property received in the same manner as sections 83(a) and 83(b) would have applied to the transfer of property pursuant to an exercise of the option.
--from 26 CFR sec. 1.83-7(a) (emphasis added).