Pony, Inc., issues restricted stock to employees in July 2019, 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 it is issued.An employee, Sam, decides to make the § 83(b) election with his 1,000 shares.At the end of 2019, the stock is trading at $13 per share.How much income, if any, must Sam recognize in 2019?
A)$-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

Sam must recognize the fair market value of the restricted stock at the time of issuance, which is $10,000 (1,000 shares x $10 per share). However, by making the § 83(b) election, Sam is electing to recognize this income in the year of issuance rather than waiting until the stock vests. Therefore, Sam must recognize $10,000 of ordinary income in 2019. The increase in the stock price in 2019 is not relevant for determining the income recognition.

Pony, Inc, Issues Restricted Stock to Employees in July 2019, with with a Two-Year