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The Myth of the 83(b) Election  


Author:  John Goldsbury.


Source: Volume 21, Number 03, Spring 2004 , pp.300-310(11)




Journal of Taxation of Investments

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Abstract: 

Under Section 83, if an employee is granted restricted1 stock as compensation, the employee will not be income taxed at that time on the value of the stock. Rather, the tax will be triggered when the stock vests.2 This will constitute ordinary income (compensation) equal to the value of the stock. If the stock has appreciated from the time of grant until the time of vesting, then the tax due will be based on that appreciated value. Under Section 83(b), a taxpayer can elect to be taxed on the value of the restricted stock at the date of grant. If such an election is made, then the subsequent vesting of the stock will not trigger any additional tax at that time. Rather, the employee will simply own stock having a basis equal to the amount s/he was taxed on at grant, and any appreciation would be recognized only upon a subsequent sale.

Keywords: 

Affiliations:  1: Bank of America.

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