1 Taxation of Executive Compensation § 7.10

Summary

• 7.10[1] Purpose of the Election

  An employee who receives, subject to a substantial risk of forfeiture, property from his employer in connection with the performance of services, may elect to include such property in his gross income in the year he receives it. If he pays a tax in that year, he will not have to pay tax in the year when the restriction lapses. Once the election is made, the subsequent lapse of a substantial risk of forfeiture is irrelevant for tax purposes. Any appreciation in the value of the shares determined as of that later time, therefore, does not represent taxable compensation to the executive.1