Reference no: EM132673286

Problem - On February 20, 2014, Tom (an executive of Hawk Corporation; a calendar year 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 was made under § 83(b), what amount, if any, was taxable to Tom in 2014?

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. Would it have been wise for Tom to make the § 83(b) special election in 2014? Why or why not? What amount would have been taxable in 2014 if he made the special election?

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

f. Under part (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 part (d), what loss would be available to Tom if he voluntarily resigns in 2018 before the five-year period and does not sell the stock back to the corporation?

h. In part (g), what amount, if any, would be taxable to Hawk Corporation in 2018?