Question

Jill was granted 1,000 shares of restricted stock when she joined the company. The share price was 6$ on the date of grant, 9$ when the restrictions lapsed, and 15$ when she disposed of the stock. No section 83(b) election was made. What is the amount and character of Jill's income on the date the restrictions lapse?

Answer 1

As 83b was not opted the assets received as a compensation of the employees performance, the restricted stock would result in the recording of an ordnary compensation income when there is a restriction but once the said restriction lapses it would result into a income which would be total sales minus amount paid for the stock.

In the given case the amount that would be taken as Jill's income would be 9000$ (1000*9) on the date of lapse as he has not paid anything for the stocks he has got from the company and this will be treated as ordinary compensation income and normal federal taxes would come in.