Updated July 29, 2026. Quick answer: It may not all be capital gain. Treas. Reg. §1.83-6(d)(1) recasts a shareholder’s transfer of property to an employee in consideration of services as two steps: a contribution of that property to the company’s capital, then a transfer from the company to you. Run that through a tender offer priced above fair market value and the excess can arrive as compensation rather than proceeds — which is why some tender offers produce a W-2 line you did not expect.
The recast, in the regulation’s own words
Treas. Reg. §1.83-6(d)(1): “If a shareholder of a corporation transfers property to an employee of such corporation or to an independent contractor (or to a beneficiary thereof), in consideration of services performed for the corporation, the transaction shall be considered to be a contribution of such property to the capital of such corporation by the shareholder …”
The operative words are in consideration of services performed for the corporation. A purchase at fair market value from a willing seller is not that. A purchase at a premium, structured through the company, offered only to employees, can be argued to be — and the regulation supplies the mechanism for treating the premium as compensation.
| Fact pattern | Which way it points |
|---|---|
| Third-party investor buys at a negotiated price, open to all holders | Toward sale proceeds |
| Price materially above the company’s own current valuation | Toward a compensation element on the excess |
| Offer available only to current employees | Toward compensation |
| Company itself is the buyer | Its own analysis, not this regulation’s recast |
| Withholding appears on the proceeds | The company has already taken a position — ask what it was |
What a 409A valuation is, and is not. It is the company’s determination of the fair market value of its common stock, made under the §409A rules for valuing stock rights in a private company. It is not a price anyone promised you and not a ceiling on what an investor may pay. But it is the number against which a premium is measured, which is why the gap between it and the tender price is the first thing to ask about.
The cash-flow trap in an investor-led offer. Where the buyer is an outside investor rather than the company, there may be no withholding on the payment at all — and if part of it is later characterised as compensation, the tax on that part was never remitted for you. Setting money aside when nobody is withholding runs on its own rules, and it is the same problem a business seller has.
If any of the shares came from incentive stock options, the character question has a second layer — exercising and tendering inside one tax year changes the AMT answer.
Sources
Treas. Reg. §1.83-6(d)(1); IRC §83(a); IRC §409A and Treas. Reg. §1.409A-1(b)(5)(iv) for what a 409A valuation legally is. Fetched July 2026.
This states what the cited authority says. It is not tax, legal or investment advice. A tender offer runs on documents specific to your company and your grants, and nothing here tells you whether to sell.