On March 1, 2015, Bema Inc. issued 600 shares of its publicly traded stock as compensation to its employee, Ms. McPhee. On date of issuance, the stock's fair market value was $12,000. Under the terms of her 2015 employment contract, Ms. McPhee couldn't dispose of the stock before July 1, 2018, and if she terminated her employment with Bema before that date, she had to forfeit the stock back to Bema. Ms. McPhee made a timely election in 2015 to accelerate income recognition with respect to the 600 shares of restricted stock. On July 1, 2018, Ms. McPhee, who was still employed by Bema, sold all 600 shares for $26,000. What are the 2018 tax consequences to Ms. McPhee?

Question

Quizplus · Accepted Answer

Ms. McPhee made a timely election under IRC Section 83(b) in 2015, recognizing $12,000 as ordinary income then. In 2018, she sold the stock for $26,000, resulting in a $14,000 capital gain ($26,000 - $12,000).