EMPLOYEE BENFIT PROGRAM 1. Identify five factors that are taken into account in

Question

EMPLOYEE BENFIT PROGRAM

1. Identify five factors that are taken into account in measuring whether a substantial risk of forfeiture is present in the case of a stockholder/employee.

2. A recipient may elect, under a so-called Section 83(b) election, to include in current income the excess fair market value of the segregated property over the amount paid for such property in exchange for long-term capital gain treatment upon sale. Identify two reasons why a recipient might make a Section 83(b) election.

Explanation / Answer

The following five factors that are taken into account in measuring whether a substantial risk of forfeiture is present in the case of a stockholder/employee.

Section 83(a) of the Internal Revenue Code of 1986 generally provides that property transferred

in exchange for services is not taxed to the employee in the year of transfer if the property is

subject to a substantial risk of forfeiture and restrictions on transfer. Instead, the property (and

any appreciation on the property in the intervening years) is taxed in the year in which the

forfeiture and transfer restrictions lapse.

§ Absent Section 83(b) election discussed below, when restrictions expire, employee

recognizes compensation (ordinary) income in an amount equal to the excess of the

then-current fair market value over amount paid, if any

o Employee recognizes this gain at time of expiration even if employee does not

sell the property

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