In 2018, 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 an employee receives stock as a bonus, the fair market value of the stock is included in the employee's income as ordinary income. Therefore, Mrs Leder would recognize $25,000 of ordinary income on receipt of the stock. Her tax basis in the stock is equal to the fair market value at the time of issuance, which is also $25,000. Choice A is incorrect because Mrs Leder must recognize income on receipt of the stock. Choice B is incorrect because her tax basis in the stock would be equal to the fair market value at the time of issuance, which is also $25,000. Choice D is incorrect because one of the above statements is true.