On February 20, 2011, Tom (an executive of Hawk Corporation) purchased 100 shares of Hawk stock (selling at $20 a share) for $10. A condition of the transaction was that Tom must resell the stock to Hawk at cost if he voluntarily leaves the company within five years of receiving the stock (assume that this represents a substantial risk of forfeiture).

a. Assuming that no special election is made under § 83(b), what amount, if any, is taxable to Tom in 2011?

b. Five years later when the stock is selling for $40 a share, Tom is still employed by Hawk. What amount of ordinary income, if any, is taxable to Tom?

c. Five years later, what amount, if any, is deductible by Hawk as compensation expense?

d. Should Tom make the § 83(b) special election in 2011? Why or why not? What amount would be taxable in 2011 if he makes the special election?

e. In (d), what amount would be deductible by Hawk five years later?

f. Under (d), assume that Tom sold all of the stock six years later for $65 per share. How much capital gain is included in his gross income?

g. In (d), what loss is available to Tom if he voluntarily resigns in 2015 before the five-year period and does not sell the stock back to the corporation?

h. In (g), in the year Tom resigns, what amount, if any, would be taxable to Hawk Corporation?