Question

On January 1, year 1, Dave received 2,000 shares of restricted stock from his employer, RRK Corporation. On that date, the stock price was $21 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 $40 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: (Leave no answers blank. Enter zero if applicable. Round your final answer to the nearest whole dollar value. Enter all amounts as positive values.)

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 Vesting date Sale date

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

	Tax Benefit Grant date Vesting date Sale date $0

Answer 1

a.

• On Grant date, receipt of Shares by Dave in Year1 is taxable @ Ordinary marginal rate. So, Tax due is (2000*21$)*32% = 13440.
• No Taxes arise on Vesting Date.
• On sale date, the capital gains are taxable. So,

Sale Proceeds	2000*53	106000
Cost of Acquisition	2000*21	42000
Capital gains		64000
Tax Rate		15%
Tax due	64000*15%	9600

Grant date	13440
Vest date	0
Sale date	9600

b. RRK will have to pay taxes on the Stock granted to Dave. Since the problem does not provide the rate, we assume its 35%

So, Tax due on Grant date: (2000*21)*35% = 14700

RRK Corporation gets no benefit on the vesting date or when Dave sells the shares. Hence, no tax due on these transactions.

Grant date	14700
Vest date	0
Sale date	0

Please comment in case of any further query regarding the solution.