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Abstract: 

In Austin v. Commissioner, the Tax Court in 2017 provided guidance on how taxpayers can use employment agreements to postpone income recognition. This article addresses the analysis in Austin and provides planning tips for the future. The case arose in the context of a distressed debt loan portfolio operation, an employee stock ownership plan, an S corporation, and irrevocable grantor trusts. While the taxpayers in this case ultimately owed the difference between fair market value and basis under Section 83 because the restrictions lapsed on their stock, and their simultaneous surrender and repurchase was judged to lack economic substance, tax planners can glean helpful tips on the use employment agreements to postpone income recognition.

Keywords: Austin v. Commissioner, Section 83, employee stock ownership plan, ESOP, substantial risk of forfeiture

Affiliations:  1: Western Illinois University.