Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 66-5

1966-1 C.B. 91

IRS Headnote

An individual who ceases to be an employee of the grantor of a restricted stock option on the last day of any calendar month must exercise a restricted stock option on or before the last day of the third succeeding calendar month in order to have exercised such option `within 3 months after he ceases to be an employee,' within the meaning of section 421(a) of the Internal Revenue Code of 1954 as in effect prior to the enactment of section 221(a) of the Revenue Act of 1964. Similarly, where stock is transferred to such an individual on the last day of any calendar month, the stock is disposed of `within 6 months after the transfer of such stock to him' where the disposition is made on or before the last day of the sixth succeeding calendar month.

I.T. 3287, C.B. 1939-1 (Part 1), 138, and I.T. 3985, C.B. 1949-2, 51, amplified.

Full Text

Rev. Rul. 66-5

Advice has been requested concerning the proper computation of the periods, prescribed in section 421(a) of the Internal Revenue Code of 1954 as in effect prior to the enactment of section 221(a) of the Revenue Act of 1964, Public Law 88-272, C.B. 1964-1 (Part 2), 6, at 41, of `3 months after the date he ceases to be an employee' and `6 months after the transfer of such share to him,' where the date of cessation of employment and the date of transfer were on the last day of a calendar month.

Section 421(a) of the Code, as then in effect, provides for certain Federal income tax results if, among other requirements, an option is exercised by the employee within 3 months after he ceases to be an employee of the grantor and if the stock acquired upon the exercise of such an option is not disposed of within 2 years from the date of the granting of the option nor within 6 months after the transfer of such share to him .

It is long and well established that, in computing a period of `years' or `months' prescribed in a contract or statute, `from' or `after' a designated day, date, act, or other event, the day thus designated is excluded and the last day of the prescribed period is included, unless a different intent is definitely evidenced. See I.T. 3287, C.B. 1939-1 (Part 1), 138.

I.T. 3985, C.B. 1949-2, 51, states the position of the Internal Revenue Service that the determination of the holding period of `capital assets' under sections 117(a)(2), (3), (4), (5), and h(4) of the Internal Revenue Code of 1939, must be made with reference to calendar months and fractions thereof, rather than with reference to days. The ruling was concerned primarily with the determination of the total holding period of securities purchased and sold where the provisions of section 117(h)(4) of the 1939 Code, relating to `wash sales,' were applicable. Although similar provisions are not involved in the instant case, the principles enunciated in that ruling apply here. Furthermore, although I.T. 3287 was not cited in I.T. 3985 the rule stated in the former was actually applied in all the appropriate illustrative examples of the latter, that is, in examples 1 through 6.

I.T. 3287, C.B. 1939-1 (Part 1), 138 and I.T. 3985, C.B. 1949-2, 51, are hereby amplied to the extent that the principles enunciated above are applicable in determining the 3-month and 6-month periods referred to in section 421(a) of the Code as in effect prior to the enactment of section 221(a) of the Revenue Act of 1964. Thus, for example, if an individual ceases to be an employee on April 30, 1963, the last day of the 3-month period thereafter would be July 31, 1963, and if the date of the share transfer were June 30, 1963, the last day of the 6-month period thereafter would be December 31, 1963.