Pony,Inc.,issues restricted stock to employees in July 2012,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 the stock is issued.An employee,Sam,decides to make the § 83(b)election with his 1,000 shares.At the end of 2012,the stock is trading at $13 per share.How much income,if any,must Sam recognize in 2012?
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

When an employee makes a § 83(b) election, they include the fair market value of the stock at the time of the grant as ordinary income in the year of the grant. In this case, Sam has 1,000 shares that have a fair market value of $10 per share, so his ordinary income recognized in 2012 is $10,000 (1,000 shares x $10 per share). The fact that the stock price increased to $13 per share at the end of 2012 is not relevant for tax purposes because Sam has already recognized his income. No capital gain is recognized until the stock is sold.

Pony,Inc,Issues Restricted Stock to Employees in July 2012,with a Two-Year