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TITLE 26-INTERNAL REVENUE CODE (g) Special rule for applying subsections (e) and (f) In applying subsections (e) and (f) for pur- poses of section 422(a)(2), 423(a)(2), and 424(a)(2), there shall be substituted for the term "employer corporation" wherever it ap- pears in subsection (e) and (f) the term "gran- tor corporation" or the term "corporation issu- ing or assuming a stock option in a transaction to which section 425(a) applies" as the case may be. (h) Modification, extension, or renewal of option (1) In general For purposes of this part, if the terms of any option to purchase stock are modified, extended, or renewed, such modification, ex- tension, or renewal shall be considered as the granting of a new option. (2) Special rules for sections 423 and 424 options (A) In the case of the transfer of stock pur- suant to the exercise of an option to which section 423 or 424 applies and which has been so modified, extended, or renewed, then, except as provided in subparagraph (B), the fair market value of such stock at the time of the granting of such option shall be consid- ered as whichever of the following is the highest: (i) the fair market value of such stock on the date of the original granting of the option, (i) the fair market value of such stock on the date of the making of such modifica- tion, extension, or renewal, or (iii) the fair market value of such stock at the time of the making of any intervening modification, extension, or renewal, (B) Subparagraph (A) shall not apply with respect to a modification, extension, or renew- al of a restricted stock option before January 1, 1964 (or after December 31, 1963, if made pursuant to a binding written contract en- tered into before January 1, 1964), if the ag- gregate of the monthly average fair market values of the stock subject to the option for the 12 consecutive calendar months before the date of the modification, extension, or re- newal, divided by 12, is an amount less than 80 percent of the fair market value of such stock on the date of the original granting of the option or the date of the making of any intervening modification, extension, or renew- al, whichever is the highest. (3) Definition of modification The term "modification" means any change in the terms of the option which gives the employee additional benefits under the option, but such term shall not include a change in the terms of the option- (A) attributable to the issuance or as- sumption of an option under subsection (a); (B) to permit the option to qualify under sections 422(b)(6), 423(b)(9), and 424(b)(2); or (C) in the case of an option not immedi- ately exercisable in full, to accelerate the time at which the option may be exercised. If a restricted stock option is exercisable after the expiration of 10 years from the date such option is granted, subparagraph (B) shall not apply unless the terms of the option are also changed to make it not exercisable after the expiration of such period. (I) Stockholder approval For purposes of this part, if the grant of an option is subject to approval by stockholders, the date of grant of the option shall be deter- mined as if the option had not been subject to such approval. (j) Cross references For provisions requiring the reporting of certain acts with respect to a qualified stock option, options granted under employer stock purchase plans, or a restricted stock option, see section 6039. (Added Pub. L. 88-272, title II, § 221(a), Feb. 26, 1964, 78 Stat. 71.) Er-rzcrvE DATE Section applicable to taxable years ending after Dec. 31, 1963, except in cases of options granted after Dec. 31, 1963, and before Jan. 1, 1965, in which case par. (1) of subsec. (h) shall not apply to any change in the terms of such option made before Jan. 1, 1965, to permit such option to qulify under pars. (3), (4), and (5) of section 422(b), see section 221(e) of Pub. L. 88- 272, set out as an Effective Date of 1964 Amendment note under section 421 of this title. SECTION REFERRED TO IN OTHER SEcTIONS This section is referred to in sections 402, 421, 422. 423, 424 of this title. Subchapter E-Accounting Periods and Methods of Accounting Part I. Accounting periods. II. Methods of accounting. III. Adjustments. PART I-ACCOUNTING PERIODS Sec. 441. Period for computation of taxable income. 442. Change of annual accounting period 443. Returns for a period of less than 12 months. § 441. Period for computation of taxable Income (a) Computation of taxable income Taxable income shall be computed on the basis of the taxpayer's taxable year. (b) Taxable year For purposes of this subtitle, the term "tax- able year" means- (1) The taxpayer's annual accounting period, if it is a calendar year or a fiscal year; (2) the calendar year, if subsection (g) ap- plies; or (3) the period for which the return is made, If a return is made for a period of less than 12 months. (c) Annual accounting period For purposes of this subtitle, the term "annual accounting period" means the annual period on the basis of which the taxpayer regu- larly computes his income in keeping his books. (d) Calendar year For purposes of this subtitle, the term "calen- dar year" means a period of 12 months ending on December 31. (e) Fiscal year For purposes of this subtitle, the term "fiscal year" means a period of 12 months ending on Page 352