Question

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

1) $0
2) $5,000
3) $8,000
4) $11,000

Answer 1

The amount of Stevie's ordinary income from the restricted stock, assuming a section 83(b) election was made, would be the fair market value at the time of the grant, which results in $8,000 based on the 1,000 shares valued at $8 per share.

Step-by-step explanation:

Stevie recently received 1,000 shares of restricted stock from her employer, Nicks Corporation, when the share price was $8 per share. Assuming Stevie made a section 83(b) election, the amount of Stevie's ordinary income with respect to the restricted stock is determined at the time the stock is granted, rather than when it vests. Hence, Stevie's ordinary income would be the fair market value of the shares at the time of the grant ($8 per share) minus any amount paid for the shares (which is typically $0 in the case of restricted stock), multiplied by the number of shares granted.

Therefore, the calculation of Stevie's ordinary income is as follows:
$8 (fair market value per share) x 1,000 shares = $8,000.

As a result, the correct answer is $8,000 and option 3 would be the chosen response.