Restricted stock

[Unregistered]

I have a client that received $17,000 in restricted stock and $3,000 in the form of stock options. The letter says the restricted stock may continue to vest following a termination of employment in certain circumstances, whereas the stock options will not continue to vest once the employee leaves employment.

Is there any tax difference between these two? I know there is no regular tax this year because none of it was exercised. But the client makes enough to be subject to AMT. Does AMT apply to both, or only stock options?

[Bees Knees]

AMT does not apply until exercised.

Regulation Section 1.57-1(f) says:

“(1) IN GENERAL. Section 57(a)(6) provides that with respect to each transfer of a share of stock pursuant to the exercise of a qualified stock option or a restricted stock option, there shall be included by the transferee as an item of tax preference the amount by which the fair market value of the share at the time of exercise exceeds the option price. The stock option item of tax preference is subject to tax under section 56(a) in the taxable year of the transferee in which the transfer is made.”

(2)…..

“(3) FAIR MARKET VALUE. In accordance with the principles of section 83(a)(1), the fair market value of a share of stock received pursuant to the exercise of a qualified or restricted stock option is to be determined without regard to restrictions (other than nonlapse restrictions within the meaning of Section 1.83-3(h)). Notwithstanding any valuation date given in section 83(a)(1), for purposes of this section, fair market value is determined as of the date the option is exercised.”


It appears stock options and restricted stock are treated the same for AMT purposes. If it is not subject to regular tax, you put the difference between the exercise price and its FMV as of the date it is exercised as an AMT preference item.

With the AMT rules kicking in more and more, we all need to be asking our clients if they exercised any stock options this year.