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Advantages and Disadvantages of the 83(b) Election for Restricted Stock

Learn the latest rules on Section 83(b) Elections.

Under the Internal Revenue Code, a transfer of property in connection with the performance of services by an employee or other service provider will generally result in the recognition of compensation income at ordinary rates when the property is either transferable or not subject to a substantial risk of forfeiture. This basic rule can bring about undesirable tax results in many contexts, including the compensatory transfer of restricted stock. In addition, the difference between federal ordinary-income tax rates versus capital gains rates has caused many recipients of restricted stock to focus on whether there are effective strategies to take advantage of the difference between these tax rates. One possible way to address these matters is for the employee or other service provider to make a 'Section 83(b)' election (under Section 83(b) of the Code) to have income recognized at the time restricted stock is granted. However, there are pros and cons to the making of such an election, and the election will therefore not always be preferable from a planning perspective. This topic helps issuers and service providers alike understand the rules governing the taxation of restricted stock, and the manner in which a Section 83(b) election might or might not be helpful to their tax-planning efforts. This material will include a discussion of certain specific situations in which the election might be particularly beneficial.

Runtime: 87 minutes
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Agenda

General Rule Under Section 83

  • Generally, Recognition When There Is No Substantial Risk of Forfeiture or When the Property Is Transferable
  • Special Issue for Transfers at Full Fair Market Value
  • The Inclusion in Income Is of Compensation Income at Ordinary Rates
  • Options

Certain Miscellaneous Issues

  • Noncompetition Covenants and Consulting Obligations and Terminations for Cause
  • Formula-Price and Other Valuation Issues
  • Social Security and Medicare
  • Other

Tax Consequences

  • Inclusion on Transfer Is at Ordinary Rates
  • Gain or Loss Thereafter Would Generally Be Capital Gain or Capital Loss

Elections Under Section 83(b)

  • Early Inclusion in Taxable Income

- Fair Market Value Included at the Time of Initial Transfer

- Timing of Election

- Election Only Available as to Section 83(b) Property

  • Election Accelerates Taxation
  • Special Issues for Founder's Stock and Purchases for Value
  • Certain Regulatory Developments

- Under Section 83(b) Generally

- Under Section 83(b)

Contrast With Deferred Compensation

  • Different Rules Apply - Actual Receipt, Constructive-Receipt and Similar Principles
  • Taxation of Restricted Stock (or Phantom Stock) Units
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Over 31 years and 1.4 million customers worth of experience providing continuing education. Our passion is providing you world-class training to help you succeed in business and as a professional.

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This program does NOT qualify, nor meet the National Standard for NASBA accreditation.

Audio & Reference Manual

This program does NOT qualify, nor meet the National Standard for NASBA accreditation.

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Why Lorman?

Over 31 years and 1.4 million customers worth of experience providing continuing education. Our passion is providing you world-class training to help you succeed in business and as a professional.

Faculty

Andrew L. Gaines

Andrew L. Gaines

Paul, Weiss, Rifkind, Wharton & Garrison LLP

  • Partner in Paul, Weiss, Rifkind, Wharton & Garrison LLP’s Employee Benefits and Executive Compensation Group
  • Advises employers on all aspects of executive compensation and employee benefit plans and their treatment in corporate transactions and in bankruptcy
  • Counsels investment fund sponsors on ERISA issues associated with the formation of private investment funds and the structuring of underlying investments; also frequently counsels large institutional pension investors on fiduciary issues arising in connection with investing in private investment funds
  • Represents employers and executives in the negotiation of employment and severance agreements
  • Recognized as a “leading individual” in Employee Benefits & Executive Compensation by Chambers USA for the past five consecutive years, with Chambers calling him “responsive, pragmatic”; he also has been recognized by The Legal 500 USA, by the PLC Which Lawyer? Yearbook, and has been listed in The Best Lawyers in America for Employee Benefits Law and Tax Law (New York City) since 2006
  • Frequent writer and lecturer on executive compensation and employee benefits topics
  • J.D. degree, Benjamin N. Cardozo Law School; B.A. degree, Hobart & William Smith College
  • Can be contacted at 212-373-3339 or [email protected]
Andrew Oringer

Andrew Oringer

Dechert LLP

  • Partner at Dechert LLP and co-chairs leads its ERISA and Executive Compensation Practice
  • Counsels clients regarding their employee benefit plans and programs, benefits-related tax matters and fiduciary issues arising in connection with the investment of employee benefit plan assets
  • Represents employers and executives in the negotiation of executive employment and termination agreements
  • Works closely with his firm's transactional practices to advise the firm's clients on employee benefits strategies in the context of corporate transactions
  • Involved in the structuring of numerous large investment funds that have been successfully marketed to employee benefits plans in the past several years and also frequently counsels plan fiduciaries in connection with the making of plan investments
  • Published numerous articles on topics relating to executive compensation and to fiduciary matters, and has a CD-ROM on employment agreements through a commercial third-party provider of executive seminars
  • On the Practical Law Employee Benefits & Executive Compensation Advisory Board and the advisory board of the Bloomberg BNA Tax Management Compensation Planning Journal
  • Quoted frequently in various major publications, including The Wall Street Journal, The New York Times, Crain's Pensions & Investments, Crain’s Investment News
  • Emerging Issues Coordinator for the Employee Benefits Committee of the American Bar Association's Section of Taxation, and recently testified at the request of Congress regarding recent Department of Labor regulations former co-chair of the Employee Benefits Committee of the Tax Section of the New York State Bar Association
  • Listed in the Chambers USA guide (Band 1, both NY and national), Legal500 (recommended) and The Best Lawyers in America; repeatedly recognized by Super Lawyers (NY edition) as being one of the top 100 attorneys in Manhattan
  • Adjunct professor at the Maurice A. Deane School of Law at Hofstra University, where he earned his law degree
  • Fellow of the American College of Employee Benefits Counsel
  • A.B. degree, Duke University; M.B.A. degree, Adelphi University School of Business
  • Can be contacted at 212-698-3571 or [email protected]
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Product ID: 399973
Published 2017
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