On February 19, 2016, Woodbridge Corporation granted Harvey an option to acquire 200 shares of the company's stock for $10 per share. The fair market price of the stock on the date of grant was $16. The stock requires that Harvey remain with the company for one year after the date of exercise. The option did not have a readily ascertainable fair market value. Harvey exercises the option on September 23, 2017, when the fair market value of the stock is $19. He makes a Section 83(b) election at the exercise date. On September 23, 2018, the fair market value of the stock is $25 per share. How much must he report as income in 2018?

Question

Quizplus · Accepted Answer

Harvey must report $0 as income in 2018 because by making a Section 83(b) election at the exercise date, he chose to include the fair market value of the stock at the time of exercise as income in 2017, rather than waiting until the restrictions lapse in 2018. Therefore, any appreciation in the stock's value after the exercise date and before the restrictions lapse is not considered income in 2018.

On February 19, 2016, Woodbridge Corporation Granted Harvey an Option