I am working with a client that sold the company he founded to another company in 2018. He is now working for W2 wages with acquiring company. A timely 83(B) election was made at the time of the merger, client trading his founder stock for the acquiring company's stock in an all stock deal. Acquiring company stock FMV = $5 on day of merger. The stock received is restricted, and will not start vesting until mid 2019.
I am relying on Rev. Rul. 2007-49: Do I understand this correctly?
1) There is no recognized gain on the 2018 return. FMV of Shares given up = FMV of shares received. The 83(B) locks this equality in place.
2) The 83(B) election recognizes this (zero) gain immediately, so there is there is no recognition of gain on vesting in 2019.
3) The gain is recognized on the ultimate sale of the stock, basis being a bit over zero, the par value of the original founder stock.
Kindly let me know if I made an error here. Even if I'm correct on the numbers and taxability, let me know if my reasoning is incorrect so I can learn from this.
I am relying on Rev. Rul. 2007-49: Do I understand this correctly?
1) There is no recognized gain on the 2018 return. FMV of Shares given up = FMV of shares received. The 83(B) locks this equality in place.
2) The 83(B) election recognizes this (zero) gain immediately, so there is there is no recognition of gain on vesting in 2019.
3) The gain is recognized on the ultimate sale of the stock, basis being a bit over zero, the par value of the original founder stock.
Kindly let me know if I made an error here. Even if I'm correct on the numbers and taxability, let me know if my reasoning is incorrect so I can learn from this.