Yet More on Restricted Stock
Here is the disclaimer:
There is a lot of downside to failing to make the correct filings in the context of restricted stock. You need to seek appropriate advice whenever you get restricted stock.
Here is the post:
A situation that commonly arises in connection with venture financings is when a founder is required to subject some or all of his or her shares to vesting as a condition to obtaining funding. Folks in our tax department note, and I agree, that:
there may be some confusion as to whether a protective 83(b) election should be filed in the situation where a founder receives company stock that is not subject to vesting, and vesting is subsequently imposed at the request of investors.
Based upon Rev Rul 2007-49, our tax department's position is that:
such an election is not required, as a general matter, where vesting is imposed on already-owned founders stock.
But, our tax folks note that:
A potential exception to this general rule is the situation where vesting is imposed shortly after the stock is first transferred.
In this situation, you need to consult your tax attorney. Our tax folks further note that:
the Rev Rul expressly holds that an 83(b) election is required (in order to avoid tax at the time of vesting) where stock is exchanged for unvested stock of the acquirer in either a tax-free reorganization or a taxable acquisition.
Comments (2)
Read through and enter the discussion by using the form at the endYokum Taku - January 29, 2009 3:19 AM
Dave - why do your tax folks think "[a] potential exception to this general rule is the situation where vesting is imposed shortly after the stock is first transferred"?
Dave Broadwin - February 2, 2009 3:00 PM
The reason our tax folks think there is potential exception is that someone might structure a step transaction so that each step complies with the requirement for vesting but no filing, but when looked at as a whole, the transaction is really just an artifice to get around the 83(b) rule. Under what circumstances someone would want to do that is not clear to me, but that is the concern.