### Question
How does the law define synthetic equity?


### Answer
Under *26 U.S.C. § 409*, **synthetic equity** is defined as:

> any stock option, warrant, restricted stock, deferred issuance stock right, or similar interest or right that gives the holder the right to acquire or receive stock of the S corporation in the future

#### Citation:
  - *26 U.S.C. § 409*
  - Heading: **Subtitle A-Income Taxes > CHAPTER 1-NORMAL TAXES AND SURTAXES > Subchapter D-Deferred Compensation, Etc. > PART I-PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC. > Subpart A-General Rule**

