Question

On January 1, year 1, Dave received 1,600 shares of restricted stock from his employer, RRK Corporation. On that date, the stock price was $17 per share. On receiving the restricted stock, Dave made the 83(b) election. Dave’s restricted shares will vest at the end of year 2. He intends to hold the shares until the end of year 4 when he intends to sell them to help fund the purchase of a new home. Dave predicts the share price of RRK will be $51 per share when his shares vest and will be $53 per share when he sells them. Assume that Dave’s price predictions are correct and answer the following questions:

a. What are Dave’s taxes due if his ordinary marginal rate is 32 percent and his long-term capital gains rate is 15 percent?

Taxes Due:

Grant Date XXX

Vesting Date XXX

Sale Date XXX

b. If Dave’s stock price predictions are correct, What are the tax consequences of these transactions to RRK?

Tax Benefit:

Grant Date XXX

Vesting Date XXX

Sale Date XXX

Answer 1

A)

Particulars	Tax Due
Grant Date	$8,704
Vesting Date	Nil
Sale Date	$8,640

Tax Dues of Dave

Tax Dues on Grant Date will be as follows:

Particulars	Amount
1. Shares Acquired (No's)	1600
2. Fair Market value of Shares	$17
3. Ordinary Income in Grant Date [(1) X (2)]	$27,200
4.Ordinary marginal Tax Rate	32%
Tax Due [(3) X (4)]	$8,704

Tax dues on vesting date will be Zero because dave has opted cgain 83(b) election.

Tax Dues on Sale Date will be as follows:

Particulars	Amount
1.Amount Realized [1600 shares x $ 53 per share]	$84,800
2.Less: Ordinary income already taxes on grant date	$27,200
3.Long Term Capital Gain	$57,600
4.Long term capiatl gain tax rate	15%
Tax due [(3) x (4)]	$8,640

B) Tax consequenses of RRK

Since the problem does not provide the rate, we assume its 35%

RRK will receive a tax benefit of $9,520 on the grant date, which is calculated as follows:

Particulars	Amount
1. Shares Acquired	1600
2. FMV on Grant Date	$17
3. Ordinary Deduction	$27,200
4.Ordinary Marginal Tax Rate	35%
5. Tax Due	$9,520

RRK receives no benefit on the vesting date or when Dave sells the shares.

Grant date	9,520
Vest date	0
Sale date	0

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