Pony,Inc.,issues restricted stock to employees in July 2012,with a two-year vesting period and an SRF.An employee must remain a full-time employee of Pony for two years after the restricted stock is issued.The stock is trading at $10 per share when the stock is issued.An employee,Sam,decides to make the § 83(b)election with his 1,000 shares.At the end of 2012,the stock is selling for $13 per share.What amount,if any,can Pony take as a compensation deduction?
A) $0.
B) $10,000 in 2012.
C) $13,000 in 2012.
D) $10,000 when stock is sold.
E) $13,000 when stock is sold.

Question

Quizplus · Accepted Answer

Pony can take a compensation deduction equal to the amount of income recognized by the employee, which is the fair market value of the stock at the time of vesting minus the amount paid for the stock. In this case, Sam made a § 83(b) election and recognized income of $10,000 ($13 - $10 per share x 1,000 shares). Therefore, Pony can take a compensation deduction of $10,000 in 2012. When Sam sells the stock, he will recognize any additional gain or loss and Pony will not be able to take any additional compensation deduction.

Pony,Inc,Issues Restricted Stock to Employees in July 2012,with a Two-Year