On July 1, 2015, Charlie Brown worked at Lucy's Physiatrist Standfor an entire day. In an exchange
Question:
On July 1, 2015, Charlie Brown worked at Lucy's Physiatrist Standfor an entire day. In an exchange for his services, Lucy allowed him to purchase one share of stock in her company for $100. On July 1, 2015, the one share of stock is worth $1,000 and Charlie pays Lucy $100, with the stock immediately transferring to Charlie.
However, Charlie Brown must continue to work for Lucy next ten years (until July 1, 2025) or he will have to give the one share of stock back and Lucy would keep the $100.
Assume the following valuations of the one share of stock on the following dates:
July 1, 2017: $5,000
July 1, 2025: $10,000
January 1, 2026: $10,100
a. What are the tax ramifications to Charlie upon receipt of the stock in 2015, assuming no election is made?
b. What are the tax ramifications to Charlie upon receipt of the stock in 2015, assuming a Sec. 83(b) election is made?
c. Assuming a Sec. 83(b) election is made, what are the tax ramifications to Charlie if he leaves on July 1, 2017 and has to return the stock?
d. Assuming a Sec. 83(b) election is made, what are the tax ramifications to Charlie on July 1, 2025 once he knows he will no longer have to give back the stock.
e. Assuming a Sec. 83(b) election is made, what are the tax ramifications to Charlie on January 1, 2026 when he sells the stock? Comment on the character of any gain and whether it is long or short term.
f. Assuming no election is made, what are the tax ramifications to Charlie on January 1, 2026 when he sells the stock? Comment on the character of any gain and whether it is long or short term.
