When restricted stock is transferred to a U.S. taxpayer
in connection with the performance of services, Internal Revenue
Code Section 83(b) allows the recipient to accelerate the taxable
event to the time of transfer, rather than the time that
restrictions lapse (vesting). If the taxpayer makes a Section 83(b)
election, which is required to be filed with the Internal Revenue
Service, then the compensatory element of the stock grant is closed
so that ordinary income is recognized at the time of grant. All
future growth or loss in the value of the stock is eligible for
capital gains or loss tax treatment, even though the stock remains
subject to forfeiture. Section 83(b) elections are frequently made
by founders or executives of growth companies or start-ups when the
value of the stock is very low at the time of grant.
According to an article in the BNA Tax Management Compensation
Planning Journal on Nov 4, 2011, the IRS is expected to issue a
model Section 83(b) election form soon. (In order to view this
article, a subscription is required. For a free trial
subscription click here.) This model will assist the IRS,
which claims that some of the Section 83(b) election statements it
receives do not include all of the required information, according
to the Journal article.
Generally, restricted shares are subject to Section 83, but
restricted stock units, deferred stock units and phantom stock, are
Sandra Cohen leads the U.S. compensation and
benefits team, advising Canadian and U.S. corporations on executive
compensation and employee benefits matters.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).