## Facts

- Centronics Data Computer Corp. granted Prentice I. Robinson an employee stock option in 1969 to buy company shares below fair market value as compensation.
- The option contained a one-year “sellback” clause requiring Robinson, if he chose to dispose of the shares within one year after exercise, to sell them back to Centronics at his original cost.
- The stock certificates bore a restrictive legend limiting resale unless the shares were registered under the Securities Act of 1933 or an acceptable legal opinion supported an exemption.
- Centronics placed a stop-transfer order with its transfer agent requiring company approval and supporting counsel opinion before processing transfers.
- Robinson exercised the option and acquired the shares; the IRS determined he had to recognize compensation income in the year of exercise under IRC § 83.
- Robinson argued the sellback clause, legend, and stop-transfer order made the shares nontransferable and subject to a substantial risk of forfeiture until one year after exercise, delaying recognition.
- The Tax Court upheld the IRS’s timing determination; Robinson appealed.

## Issues

1. Whether the option’s one-year sellback clause and related securities-law transfer restrictions rendered the shares not “substantially vested” under IRC § 83 at the time of exercise.
2. Whether those restrictions made the shares “nontransferable” or subject to a “substantial risk of forfeiture” so as to defer income recognition beyond the year of exercise.

## Decision

- The First Circuit affirmed the Tax Court.
- The court held Robinson had to recognize income under IRC § 83 in the year he exercised the option and received the stock.
- The one-year sellback clause was treated as a restraint on short-term disposition, not a condition creating a substantial risk that Robinson would lose the stock.
- The restrictive legend and stop-transfer order were viewed as securities-law compliance measures and contractual limitations that did not defeat transferability for § 83 timing.

## Legal Principles

- Under IRC § 83(a), property transferred in connection with services is included in income when it becomes transferable or not subject to a substantial risk of forfeiture, whichever occurs earlier.
- A “substantial risk of forfeiture” generally requires a meaningful chance of losing the property (or a required forfeiture) upon failure to satisfy conditions typically tied to future services or performance.
- Restrictions that primarily limit the timing or manner of resale (including short-swing-type sellback provisions and ordinary securities-law resale limits) do not, by themselves, create a substantial risk of forfeiture under § 83.
- Stock can be “transferable” for § 83 purposes even when transfer is conditioned on compliance with securities laws and company approval mechanisms, where the employee’s ownership is not meaningfully at risk.

## Conclusion

The court held that Robinson’s discounted shares were taxable under IRC § 83 in the year of option exercise because the sellback and securities-law-related restrictions limited resale but did not impose a substantial risk of forfeiture or prevent transferability sufficient to defer income recognition.


Robinson v. Commissioner of Internal Revenue, 805 F.2d 38 (1st Cir. 1986)