26 U.S.C. § 83 — Property transferred in connection with performance of servicestransferred

(a) General rule: If, because of work you do, someone gives you property (other than cash) that isn't fully yours yet — meaning you could lose it by not finishing more work, or you can't sell it yet — then once it becomes fully yours (whichever happens first: you can freely transfer it, or you're no longer at risk of losing it), you must report income. That income equals the property's fair market value at that time (ignoring restrictions, except ones that never expire) minus whatever you paid for it. Exception: if you sell the property in a fair, arm's-length deal before it becomes fully yours, this rule doesn't apply. (b) Election to include in gross income in year of transfer: (1) Instead of waiting, you can choose to report income right away, in the year you get the property: the fair market value at transfer, minus what you paid. If you make this choice, subsection (a) no longer applies to that property, and if you later forfeit it, you can't deduct anything for the loss. (2) You must make this election within 30 days of the transfer, in the way the Secretary requires, and it can't be undone later without the Secretary's consent. (c) Special rules — definitions: (1) "Substantial risk of forfeiture" means you could lose the property if you don't keep doing significant future work. (2) Property is "transferable" only if whoever you'd give it to also wouldn't be at risk of losing it. (3) If selling the property at a profit could get you sued under section 16(b) of the Securities Exchange Act (the insider short-swing-profit rule), then for as long as that's true, your rights are treated as (A) at risk of forfeiture and (B) not transferable. (4) To figure your basis in property received for services, rules like section 72(w) apply. (d) Restrictions that never lapse: (1) Valuation: If a permanent restriction lets you sell the property only at a formula-set price, that formula price counts as its fair market value — unless the Secretary proves otherwise; the Secretary bears that burden of proof. (2) Cancellation: If that permanent restriction is later canceled, the gain (full value without the restriction, minus the value with the restriction, minus anything paid for the cancellation) counts as pay for that year — unless you prove the cancellation wasn't meant as pay, and whoever would get a deduction for treating it as pay agrees, in the manner the Secretary's regulations require, to treat it as not pay. (e) This section does not apply to: (1) transactions covered by section 421; (2) transfers to or from a section 401(a) trust, or an annuity plan meeting section 404(a)(2); (3) transferring a stock option without a readily figured market value; (4) transferring property by exercising an option that did have a readily figured value when granted; or (5) group-term life insurance under section 79. (f) Holding period: When counting how long you've held the property, the clock starts only once your rights become transferable or risk-free, whichever comes first. (g) Certain exchanges: If property covered by subsection (a) is traded for property with substantially similar restrictions, and the trade qualifies under sections 354, 355, 356, or 1036 (or the part of 1031 relating to 1036), or happens through exercising a conversion right, then (1) the exchange is ignored for subsection (a) purposes, and (2) the new property is treated as covered by subsection (a) too. (h) Deduction by employer: The business that received the services can deduct, under section 162, the same amount the worker had to report as income under subsections (a), (b), or (d)(2), for the employer's tax year matching when the worker reported that income. (i) Qualified equity grants: This lets qualified employees at certain private companies defer tax on stock from options or restricted stock units (RSUs) for up to 5 years. (1) Timing: A qualifying employee who elects deferral includes the income in the tax year containing whichever comes earliest: (i) the stock first becomes transferable; (ii) the employee becomes an "excluded employee"; (iii) the company's stock first becomes publicly tradable; (iv) 5 years pass from when the stock first became transferable or risk-free; or (v) the employee revokes the election. (2) "Qualified stock" is stock received from exercising an option or a settled RSU, granted for work as an employee during a year the company was an "eligible corporation" — but it doesn't count if the employee could immediately sell it back to the company or get cash instead once it becomes transferable or risk-free. An "eligible corporation" for a year is one whose stock isn't publicly traded and that has a written plan giving at least 80% of its U.S. employees the same rights to stock options or RSUs (judged similarly to section 423(b)(5), except unequal share counts still qualify as long as everyone gets more than a token amount, and option rights are never "the same" as RSU rights); certain employees don't count toward that 80%; and for years before 2018, the equal-rights requirement is ignored. (3) A "qualified employee" isn't an "excluded employee" and agrees to meet withholding requirements the Secretary sets. An "excluded employee" is a 1%-or-more owner (now or in the past 10 years), a current or former CEO or CFO, a relative of a CEO or CFO under section 318(a)(1), or one of the company's 4 highest-paid officers this year or in the past 10 years. (4) The election must be made within 30 days after the stock first becomes transferable or risk-free, similar to the (b) election. It's not allowed if the employee already made a (b) election for that stock, the company's stock is already publicly traded, or the company bought back its own stock the prior year — unless at least 25% of that buyback (by dollar value) was "deferral stock" and buyback sellers were chosen reasonably; related rules define "deferral stock," exclude sellers who still hold longer-deferred stock, treat buying back all deferral stock as meeting the 25% test, and require reporting of buyback amounts. (5) Companies treated as a single employer under section 414(b) count as one corporation here. (6) When stock would otherwise become taxable, the company must certify it's "qualified stock" and tell the employee about the deferral option, that the taxed amount will be based on the stock's value when it first became transferable or risk-free (even if it later drops), that withholding under section 3401(i) at the section 3402(t) rate will apply, and what the employee's own withholding responsibilities are. (7) This whole subsection (i), including the (b) election, never applies to restricted stock units themselves — only to the stock they convert into.