On May 1, year 1, Anna received 5,100 shares of restricted stock from her employ

Question

On May 1, year 1, Anna received 5,100 shares of restricted stock from her employer, Jarbal Corporation. On that date, the stock price was $5 per share. On receiving the restricted stock, Anna made the 83(b) election. Anna’s restricted shares will all vest on May 1, year 3. After the shares vest, she intends to sell them immediately to purchase a condo. True to her plan, Anna sold the shares immediately after they were vested.

b. What is Anna’s gain or loss in year 3 if the stock is valued at $3.00 per share on the day the shares are sold?

c. What is Anna’s gain or loss in year 3 if the stock is valued at $7.0 per share on the day the shares are sold?

d. What is Anna’s gain or loss in year 3 if the stock is valued at $5 per share on the day the shares are sold?

Explanation / Answer

When Section 83(b) is opted then no taxes are payable at the time the shares are vested. On the date of sale which happens after more than one year from the date on which restricted stock is granted, a long term capital gain will be imposed on the amount of gain.

b) Ordinary Income = NIL

Capital Loss = (3 - 5) * 5100 = $ 10,200

c) Ordinary Income = NIL

Capital Gain = (7 - 5) * 5100 = $ 10,200

d) Ordinary Income = NIL

Capital Gain = (5 - 5) * 5100 = NIL

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