Question

qui-gon recently received 1,000 shares of restricted stock from her employer, nicks corporation, when the share price was $8 per share. qui-gon's restricted shares vested three years later when the market price was $11. qui-gon held the shares for a little more than three years and sold them when the market price was $16. assuming qui-gon made an 83(b) election, what is the amount of qui-gon's ordinary income with respect to the restricted stock?

Answer 1

Qui-Gon's ordinary income from the restricted stock, assuming an 83(b) election, is $8,000, based on the original grant price of $8 per share for 1,000 shares. The capital gain when selling the shares at $16 per share would also be $8,000.

Step-by-step explanation:

The amount of ordinary income for Qui-Gon with respect to the restricted stock, assuming an 83(b) election, is based on the market value of the shares when they were awarded, not when they vested or were sold. Since Qui-Gon received 1,000 shares at $8 per share, the total ordinary income reported would be 1,000 shares multiplied by $8 per share, which equals $8,000. This income is reported in the year the shares were granted, due to the 83(b) election. Qui-Gon would not recognize any additional ordinary income when the shares vest.

When Qui-Gon sells the shares at $16 per share, the sale would result in a capital gain, not ordinary income. This gain would be calculated based on the difference between the selling price and the price at which the income was originally recognized ($8 per share). Therefore, the capital gain would be (1,000 shares * $16 sale price) - (1,000 shares * $8 original value) \= 1,000 shares * $8 gain per share \= $8,000 capital gain.