E is an employee of Web Inc. (Web), a newly formed high-technology firm. E's compensation package with Web includes the grant of an option purchase 100,000 share of Web stock for $1.50 per share, the stock's current fair market value. In order to exercise the option, E must be employed by Web for three years. Assume that under Reg. 1.83-7(b)(2), on its receipt in year 1, E's option does not have a readily ascertainable fair market value. At the end of year three Web stock is worth $8 per shares.

A. What are the tax results to E, assuming that in the fourth year, E is still employed by Web and exercises the option to purchase 100,000 shares of the company's stock when it is worth $10 per shares?

B. If the option gives E the right to immediately purchase 100,000 shares of Web stock for $1.50 per share, but E's right (and the right of any transferee) to retain the stock is conditioned upon E working for Web for three years, what result if E exercises the option and purchase 100,000 share of Web stock in the first year for it's $1.50 per share fair market value?

C. What result in (A) above, if E gives the option to child who exercises the option in the fourth year?