[Federal Register Volume 69, Number 153 (Tuesday, August 10, 2004)]
[Rules and Regulations]
[Pages 48392-48393]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-18159]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9148]
RIN 1545-BC06


Transfers of Compensatory Options

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains regulations that provide rules 
governing transfers of certain compensatory stock options (nonstatutory 
stock options). The regulations affect persons who have been granted 
nonstatutory stock options, as well as service recipients who may be 
entitled to deductions related to the options.

DATES: Effective Date: These regulations are effective August 10, 2004.
    Applicability Dates: These regulations apply to transfers of 
nonstatutory stock options on or after July 2, 2003.

FOR FURTHER INFORMATION CONTACT: Stephen Tackney (202) 622-6030 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    These regulations amend 26 CFR part 1. On July 2, 2003, a temporary 
regulation (TD 9067) relating to transfers of compensatory options was 
published in the Federal Register (68 FR 39453). A notice of proposed 
rulemaking (REG-116914-03) was published in the Federal Register for 
the same day (68 FR 39498). No public hearing was requested or held. No 
written or electronic comments responding to the notice of proposed 
rulemaking were received. The proposed regulations are adopted without 
change by this Treasury decision, and the corresponding temporary 
regulations are removed.

Special Analyses

    It has been determined that these regulations are not a significant 
regulatory action as defined in Executive Order 12866. Therefore, a 
regulatory assessment is not required. It also has been determined that 
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) 
does not apply to these regulations, and because these regulations do 
not impose a collection of information on small entities, the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. 
Pursuant to section 7805(f) of the Code, these regulations were 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small business.

Drafting Information

    The principal author of these final regulations is Stephen Tackney 
of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt 
and Government Entities). However, other personnel from the IRS and 
Treasury Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by removing 
the entry for ``1.83-7T'' and continues to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *.


0
Par. 2. Sec.  1.83-7 is amended as follows:
0
1. Paragraph (a) is amended by adding two sentences at the end.
0
2. Paragraphs (a)(1) and (a)(2) are added.
0
3. Paragraph (d) is revised.
    The additions read as follows:


Sec.  1.83-7  Taxation of nonqualified stock options.

    (a) * * * The preceding sentence does not apply to a sale or other 
disposition of the option to a person related to the service provider 
that occurs on or after July 2, 2003. For this purpose, a person is 
related to the service provider if--
    (1) The person and the service provider bear a relationship to each 
other that is specified in section 267(b) or 707(b)(1), subject to the 
modifications that the language ``20 percent'' is used instead of ``50 
percent'' each place it appears in sections 267(b) and 707(b)(1), and 
section 267(c)(4) is applied as if the family of an individual includes 
the spouse of any member of the family; or
    (2) The person and the service provider are engaged in trades or 
businesses under common control (within the meaning of section 52(a) 
and (b)); provided that a person is not related to the service provider 
if the person is the service recipient with respect to the option or 
the grantor of the option.
* * * * *
    (d) This section applies on and after July 2, 2003. For 
transactions prior to

[[Page 48393]]

that date, see Sec.  1.83-7 as published in 26 CFR part 1 (revised as 
of April 1, 2003).


Sec.  1.83-7T  [Removed]

0
Par. 3. Section 1.83-7T is removed.

Linda M. Kroening,
Acting Assistance Deputy Commissioner for Services and Enforcement.
    Approved: July 28, 2004.
Gregory Jenner,
Acting Assistant Secretary of the Treasury.
[FR Doc. 04-18159 Filed 8-9-04; 8:45 am]
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