This year, Jenko Inc., a calendar year taxpayer, issued 1,000 shares of its publicly traded stock as a bonus to its employee, Mrs. Leder. On the date of issuance, the stock's fair market value was $25,000, and Mrs. Leder's ownership rights in the stock were unrestricted. Which of the following statements is true?

Question

Quizplus · Accepted Answer

When a publicly traded company issues shares of its stock to an employee, the value of the shares is considered taxable compensation to the employee. In this case, Mrs. Leder received 1,000 shares with a fair market value of $25,000, so she would recognize $25,000 of ordinary income on receipt of the stock. Her tax basis in the stock would also be $25,000. Option A is incorrect because Mrs. Leder does recognize income, and her tax basis cannot be zero. Option B is incorrect because her tax basis would be equal to the fair market value of the stock upon receipt. Option D is incorrect because one of the other options is correct.

This Year, Jenko Inc