(b) Employee stock purchase plan
For purposes of this part, the term “employee stock purchase plan” means a plan which meets the following requirements:
(1) the plan provides that options are to be granted only to employees of the employer corporation or of its parent or subsidiary corporation to purchase stock in any such corporation;
(2) such plan is approved by the stockholders of the granting corporation within 12 months before or after the date such plan is adopted;
(3) under the terms of the plan, no employee can be granted an option if such employee, immediately after the option is granted, owns stock possessing 5 percent or more of the total combined voting power or value of all classes of stock of the employer corporation or of its parent or subsidiary corporation. For purposes of this paragraph, the rules of section 424(d) shall apply in determining the stock ownership of an individual, and stock which the employee may purchase under outstanding options shall be treated as stock owned by the employee;
(4)
under the terms of the plan, options are to be granted to all employees of any corporation whose employees are granted any of such options by reason of their employment by such corporation, except that there may be excluded—
(A) employees who have been employed less than 2 years,
(B) employees whose customary employment is 20 hours or less per week,
(C) employees whose customary employment is for not more than 5 months in any calendar year, and
(D) highly compensated employees (within the meaning of section 414(q));
(5) under the terms of the plan, all employees granted such options shall have the same rights and privileges, except that the amount of stock which may be purchased by any employee under such option may bear a uniform relationship to the total compensation, or the basic or regular rate of compensation, of employees, and the plan may provide that no employee may purchase more than a maximum amount of stock fixed under the plan;
(6)
under the terms of the plan, the option price is not less than the lesser of—
(A) an amount equal to 85 percent of the fair market value of the stock at the time such option is granted, or
(B) an amount which under the terms of the option may not be less than 85 percent of the fair market value of the stock at the time such option is exercised;
(7)
under the terms of the plan, such option cannot be exercised after the expiration of—
(A) 5 years from the date such option is granted if, under the terms of such plan, the option price is to be not less than 85 percent of the fair market value of such stock at the time of the exercise of the option, or
(B) 27 months from the date such option is granted, if the option price is not determinable in the manner described in subparagraph (A)
(8)
under the terms of the plan, no employee may be granted an option which permits his rights to purchase stock under all such plans of his employer corporation and its parent and subsidiary corporations to accrue at a rate which exceeds $25,000 of fair market value of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. For purposes of this paragraph—
(A) the right to purchase stock under an option accrues when the option (or any portion thereof) first becomes exercisable during the calendar year;
(B) the right to purchase stock under an option accrues at the rate provided in the option, but in no case may such rate exceed $25,000 of fair market value of such stock (determined at the time such option is granted) for any one calendar year; and
(C) a right to purchase stock which has accrued under one option granted pursuant to the plan may not be carried over to any other option; and
(9) under the terms of the plan, such option is not transferable by such individual otherwise than by will or the laws of descent and distribution, and is exercisable, during his lifetime, only by him.
For purposes of paragraphs (3) to (9), inclusive, where additional terms are contained in an offering made under a plan, such additional terms shall, with respect to options exercised under such offering, be treated as a part of the terms of such plan.
Amendments
2014—Subsec. (a). Pub. L. 113–295 struck out “after December 31, 1963,” after “option granted” in introductory provisions.
2004—Subsec. (c). Pub. L. 108–357 inserted at end of concluding provisions “No amount shall be required to be deducted and withheld under chapter 24 with respect to any amount treated as compensation under this subsection.”
1990—Subsec. (a). Pub. L. 101–508, § 11801(c)(9)(D)(i), struck out “(other than a restricted stock option granted pursuant to a plan described in section 424(c)(3)(B))” after “December 31, 1963”.
Subsec. (a)(2). Pub. L. 101–508, § 11801(c)(9)(D)(ii), substituted “424(a)” for “425(a)”.
Subsec. (b)(3). Pub. L. 101–508, § 11801(c)(9)(E), substituted “424(d)” for “425(d)”.
1986—Subsec. (b)(4)(D). Pub. L. 99–514 substituted “highly compensated employees (within the meaning of section 414(q))” for “officers, persons whose principal duties consist of supervising the work of other employees, or highly compensated employees”.
1984—Subsec. (a)(1). Pub. L. 98–369 substituted “6 months” for “1 year”, applicable to property acquired after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment note below.
1976—Subsec. (a)(1). Pub. L. 94–455, § 1402(b)(2), provided that “9 months” would be changed to “1 year”.
Pub. L. 94–455, § 1402(b)(1)(E), provided that “6 months” would be changed to “9 months” for taxable years beginning in 1977.
Effective Date of 2014 Amendment
Amendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.
Effective Date of 2004 Amendment
Amendment by Pub. L. 108–357 applicable to stock acquired pursuant to options exercised after Oct. 22, 2004, see section 251(d) of Pub. L. 108–357, set out as a note under section 421 of this title.
Effective Date of 1986 Amendment
Amendment by Pub. L. 99–514 applicable to years beginning after Dec. 31, 1986, see section 1114(c)(1) of Pub. L. 99–514, set out as a note under section 414 of this title.
Effective Date of 1984 Amendment
Amendment by Pub. L. 98–369 applicable to property acquired after June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub. L. 98–369, set out as a note under section 166 of this title.
Effective Date of 1976 Amendment
Pub. L. 94–455, title XIV, § 1402(b)(1), Oct. 4, 1976, 90 Stat. 1731, provided that the amendment made by that section is effective with respect to taxable years beginning in 1977.
Pub. L. 94–455, title XIV, § 1402(b)(2), Oct. 4, 1976, 90 Stat. 1732, provided that the amendment made by that section is effective with respect to taxable years beginning after Dec. 31, 1977.
Effective Date
Section applicable to taxable years ending after Dec. 31, 1963, see section 221(e) of Pub. L. 88–272, set out as an Effective Date of 1964 Amendment note under section 421 of this title.
Regulations
Secretary of the Treasury or his delegate to issue before Feb. 1, 1988, final regulations to carry out amendments made by section 1114 of Pub. L. 99–514, see section 1141 of Pub. L. 99–514, set out as a note under section 401 of this title.
Savings Provision
For provisions that nothing in amendment by Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liability for tax for periods ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title.
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.