Exam 19: Deferred Compensation

Pony, Inc., issues restricted stock to employees in July 2019, with a two-year vesting period and an SRF.An employee must remain a full-time employee of Pony for two years after the restricted stock is issued.It is trading at $10 per share when Sam is issued 1,000 shares, and he proceeds to make a § 83(b) election.At the end of 2019, the stock is selling for $13 per share.Sam remains a full-time employee of Pony for the required two-year vesting period at which time the stock is worth $30 per share.Sam sells his 1,000 shares in 2023 at $36 per share.What amount and type of income will Sam recognize in 2023?

What is a profit sharing plan?

The spread on an incentive stock option is subject to the individual alternative minimum tax.

On January 1, 2016, Gail (an executive) receives a warrant to purchase one share of stock at $70 and on the same date the fair market value of the stock is $100.The warrant has no restrictions and has a readily ascertainable fair market value on a stock exchange of $30.She exercises the warrant on May 15, 2016, and sells the stock for $200 on December 20, 2019. a.Calculate the amount, if any, that Gail would recognize in 2016. b.Calculate the amount, if any, that Gail would recognize in 2019. c.Suppose she sells the warrant in 2020 for $39.What amount would Gail recognize?

In 2019, Jindal Corporation paid compensation of $42,300 to the participants in a profit sharing plan and then contributed $12,800 to the plan.Jindal's deductible amount and any contribution carryover are as follows:

Qualified plans have higher startup and administrative costs than nonqualified plans.

Yvonne exercises incentive stock options (ISOs) for 100 shares of Apple Corporation stock at the option price of $100 per share on May 21, 2019, when the fair market value is $120 per share.She holds the stock for only seven months and sells the shares for $140 per share.Determine the recognized gain on the sale and classify it as capital or ordinary.

James, an executive at Silver, Inc., receives a $600,000 payment under a golden parachute agreement.James's base amount from Silver, Inc., is $140,000.What is the total tax James must pay, assuming a 37% individual tax rate?

Which of the following characteristics is not a characteristic of a cash balance plan?

An NQDC plan cannot discriminate in favor of officers or other highly compensated employees.

On November 19, 2018, Rex is granted a nonqualified stock option to purchase 100 shares of Tan Company.On that date, the stock is selling for $8 per share, and the option price is $9 per share.Rex exercises the option on August 21, 2019, when the stock is selling for $10 per share.Five months later, Rex sells the shares for $11.50 per share. a.What amount is included in Rex's gross income in 2018? b.What amount is included in Rex's gross income in 2019? c.What amount and type of gain is recognized by Rex in 2020? d.What amount, if any, is deductible by Tan Company in 2019? e.What amount, if any, is recognized in 2019 if the stock is sold for $9.50 per share?

Group life insurance is considered a deferred compensation plan.

Yvonne exercises incentive stock options (ISOs) for 100 shares of Apple Corporation stock at the option price of $100 per share on May 21, 2019, when the fair market value is $120 per share.She sells the 100 shares of stock 3 1/2 years later for $140.Determine the recognized gain on the sale and classify it as capital or ordinary.

A major disadvantage of an NQSO is that an employee must recognize ordinary income on the exercise of the option or at the date of the grant without receiving cash to pay the tax.

Zackie has five years of service completed as of February 5, 2018, which is his employment anniversary date.If his defined benefit plan [not a § 401(m) arrangement] uses the graded vesting rule, determine Zackie's nonforfeitable percentage.

The $1 million deduction limitation on executive compensation is decreased by any nondeductible golden parachute payments made to an employee.

If a married taxpayer is an active participant in another qualified retirement plan, the traditional IRA deduction phaseout begins at $103,000 of AGI for a joint return in 2019.

The special § 83(b) election (i.e., where income is taxed in the year of the grant) with respect to a restricted stock plan may be advantageous in which of the following situations?

Fred is a self-employed accountant with gross earned income of $140,000 per year (after the deduction for one-half of any self-employment tax).He has a profit sharing plan (i.e., defined contribution plan).What is the maximum amount Fred can contribute to his retirement plan?

Which statement is true with respect to golden parachute payments?