Can the Parent Corporation Take the Section 83(h) Deduction for the Option Payment?
The Chief Counsel cited to Regs. ยงยง1.83-6(d) and 1.1032-3 to conclude that when a parent corporation pays an employee of its subsidiary for the exercise of a stock option, the parent is treated as making a capital contribution to the subsidiary and the subsidiary is entitled to the deduction for payment to its employee. This is the result, even if the subsidiary is no longer in existence, as was the case in the CCA where the Chief Counsel stated that the successor to the subsidiary was the proper party to take the deduction for the payments made to the employee. Commentary In this CCA, the Chief Counsel reiterated several key legal concepts that have broad application to many transactions, including mergers, spin-offs, sales of subsidiaries, and workout situations. For example, the IRS is readily supportive of a relation-back approach to determine proper tax treatment for multi-party, multi-year transactions. Additionally, a successor entity can take into account tax consequences of th
