Stevie recently received 1,000 shares of restricted stock from her employer, Nicks Corporation, when the share price was $8 per share. Stevie's restricted shares vested three years later when the market price was $11. Stevie held the shares for a little more than a year and sold them when the market price was $16. Assuming Stevie made a section 83(b)election, what is the amount of Stevie's ordinary income with respect to the restricted stock?
A)$0
B)$5,000
C)$8,000
D)$11,000

Question

Quizplus · Accepted Answer

Since Stevie made a section 83(b) election, she recognized ordinary income at the time of grant equal to the fair market value of the shares ($8 per share in this case) multiplied by the number of restricted shares granted (1,000 shares in this case), which equals $8,000. Stevie does not recognize any additional ordinary income when the shares vest, as their value increased by the time they vested. Stevie's long-term capital gain is the difference between the sales price of $16 per share and the adjusted basis of $11 per share (the market price when they vested), which is $5 per share or $5,000 total.

Stevie Recently Received 1,000 Shares of Restricted Stock from Her