($25,000 paid for the stock and $15,000 included in income under § 83(a)). As a result
of the 2015 sale of the stock for $60,000, E realizes $20,000 ($60,000 sale price -
$40,000 basis) of gain, which is a capital gain.
Example 3. The facts are the same as in Example 1 above, except that E terminates
employment with Company A on August 1, 2013 before the shares become
substantially vested. Because the excess of the fair market value of the property
($25,000) over the amount E paid for the property ($25,000) is $0, E includes $0 in
gross income for 2012 as a result of the stock transfer and related § 83(b) election.
When E terminates employment on August 1, 2013, the fair market value of the stock is
$30,000 but Company A purchases the stock from E for $25,000 pursuant to the terms
of the restricted stock agreement. As a result of the 2013 sale of the stock for $25,000,
E realizes $0 in gain ($25,000 sale price - $25,000 basis).
Example 4. Company B is a publicly held corporation and Company B stock is traded
on an established securities market. On April 1, 2012, in connection with the
performance of services, Company B transfers to F, its employee, 25,000 shares of
substantially nonvested stock in Company B. At the time of the transfer, the shares
have an aggregate fair market value of $25,000. F is not required to pay Company B
any consideration in exchange for the stock. The restricted stock agreement provides
that if F ceases to provide services to Company B as an employee prior to April 1, 2014,
F will forfeit the stock back to Company B. F’s ownership of the 25,000 shares of stock
will not be treated as substantially vested until April 1, 2014 and will only be treated as
substantially vested if F continues to provide services to Company B as an employee
until April 1, 2014. On April 1, 2012, F makes a valid election under § 83(b) with respect
to the 25,000 shares of Company B stock. Because the excess of the fair market value
of the property ($25,000) over the amount F paid for the property ($0) is $25,000, F
includes $25,000 of compensation in gross income for 2012 as a result of the stock
transfer and related § 83(b) election. The 25,000 shares of stock become substantially
vested on April 1, 2014 when the fair market value of the shares is $40,000. No
compensation is includible in F’s gross income when the shares become substantially
vested on April 1, 2014. In 2015, F sells the stock for $60,000. As a result of the sale,
F realizes $35,000 ($60,000 sale price - $25,000 basis) in gain, which is a capital gain.
Example 5. The facts are the same as in Example 4 above, except that F does not
make an election under § 83(b). Under § 83(a), F includes $0 in gross income in 2012
as a result of the transfer of stock from Company B because the stock is not
substantially vested. When the shares become substantially vested on April 1, 2014, F
includes $40,000 ($40,000 fair market value less $0 purchase price) of compensation in
gross income. F’s basis in the stock as of April 1, 2014 is $40,000 ($0 paid for the stock
and $40,000 included in income under § 83(a)). As a result of the 2015 sale of the
stock for $60,000, F realizes $20,000 ($60,000 sale price - $40,000 basis) of gain,
which is a capital gain.
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