Five years ago in March, Kelley Incorporated issued 1,000 shares of its publicly traded stock as compensation to its employee, Thomas. On the date of issuance, the stock’s fair market value was $20,000. Under the terms of his employment contract, Thomas could not dispose of the stock or terminate his employment with Kelley before March of the current year. Otherwise, he had to forfeit the stock back to Kelley. Thomas did not make an election to recognize income in the year of receipt. The restrictions lapsed in March of the current year when Thomas was still a Kelley employee and the value of the stock was $35,000. In December of the current year, Thomas sold all 1,000 shares for the current fair market value of $50,000. How much capital gain or capital loss must Thomas recognize in the current year?

Question

BlackTom AI · Accepted Answer

Begin by outlining the scenario: Kelley granted Thomas 1,000 shares as compensation five years ago, with a $20,000 fair market value at issuance. Restrictions prevented sale or termination, and Thomas did not elect to recognize income in the year of receipt. The restrictions lapsed in March of the current year, when the stock’s value was $35,000, and Thomas remained an employee. In December, he sold all shares for $50,000.

Option A: "$20,000 capital loss." This is incorrect because the $20,000 figure reflects the stock’s FMV at the time of issuance, not any taxable gain or loss later. Since the taxation occurs when restrictions lapse (or upon sale, depending on election), the $20,000 amount isn’t treated as a loss upon sale.

Option B: "No capital gain or loss." This is inaccurate because a sale occurred with a proceeds amount ($50,000) different from the basis established after vesting. Once the stock becomes taxable and the basis is set, selling for a different amount will produce a gain or loss.

Option C: "$15,000 capital gain." This is the correct outcome under the restricted stock rules. Because Thomas did not elect to recognize income in the year of receipt, ordinary income is recognized when the restrictions lapse. The lapse value is $35,000, which becomes Thomas’s ordinary income and his basis for the stock. When he sells for $50,000, the gain is $50,000 minus $35,000, equal to $15,000. The holding period from March to December is under a year, so this is a short-term capital gain.

Option D: "$35,000 capital gain." This option would imply the entire lapse value is a capital gain, which is not correct here because the lapse value is taxed as ordinary income, not as a capital gain. The basis is adjusted to reflect the ordinary income; the actual capital gain is determined by the sale price minus that adjusted basis ($50,000 − $35,000 = $15,000).

In summary, the crucial steps are: (1) determine that no election means taxation occurs at vesting; (2) use the lapse value ($35,000) as both ordinary income and the stock’s basis; (3) compute the sale gain as $50,000 minus $35,000, yielding $15,000 short-term capital gain.

类似问题

Is the following statement true or false? In the products of methylation-hydrolysis, every -OH group corresponds to the position of a glycosidic bond in the starting polysaccharide.

Which of the follwoing structures represents amylopectin?

Which of the following is true about an aldopentose?I. It is a monosaccharide.II. It contains a CHO groupIII. It is a disaccharide.IV. It is an oligosaccharide.

For stock A, we have 𝛽 𝑖 = 0.70. Suppose the expected market risk premium next year is 9% and the risk-free rate is 3%. What is the expected return of this stock based on the CAPM? (Please answer in % and round to 2 decimal places. If the answer is 8.057%, then in the box, write 8.06)

The following graph shows the Security Market Line in the current economy. If a stock has a β of 1.2, what is the expected return of this stock based on the CAPM? (Please answer in % and round to 2 decimal places. If the answer is 8.057%, then in the box, write 8.06)

更多留学生实用工具

智能学习助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单