Pony,Inc. ,issues restricted stock to employees in July 2016,with a two-year vesting period and an SRF.An employee must remain a full-time employee of Pony for two years after the restricted stock is issued.The stock is trading at $10 per share when the stock is issued.An employee,Sam,decides to make the § 83(b)election with his 1,000 shares.At the end of 2016,the stock is trading at $13 per share.How much income,if any,must Sam recognize in 2016?
A)$0.
B)$10,000 capital gain.
C)$10,000 ordinary income.
D)$13,000 capital gain.
E)$13,000 ordinary income.

Question

Quizplus · Accepted Answer

Since Sam made the § 83(b) election, he will recognize ordinary income equal to the fair market value of the stock ($10,000) minus the amount paid for the stock ($0) in 2016. Therefore, Sam must recognize $10,000 of ordinary income in 2016. The fact that the stock increased in value to $13 per share at the end of 2016 is not relevant since Sam made the § 83(b) election and recognized the income in the year of the grant.

Pony,Inc ,Issues Restricted Stock to Employees in July 2016,with a Two-Year