Income Tax on Restricted Securities

What is the name of your state? Virginia

I just received a 1099-MISC listing $37,500 as nonemployee compensation for restricted securities I was issued in March 2003 by a public company for whom I provided services. I would like to know if these are indeed taxable and if the IRS would view these as "vested" for the purposes of taxation.

I was issued a stock certificate for 250,000 shares (@ 15 cents each) with a restrictive legend in March 2003. A month later the company did a 1:7 reverse split and within days of the split, the stock was shorted and stayed in the 20 cents/share range for the duration of the year. So now I actually have 35,715 shares, and the current market stock price is 24 cents.

No "restricted stock agreement" or any other type of stock agreement was given to me outlining any vesting schedule, just the stock certificate. The fact that I was issued a 1099 leads me to believe there was no vesting schedule, per se, but perhaps the company was wrong to issue me the 1099 to begin with (?).

I am wondering if, because these are restricted securities under SEC Rule 144 and I therefore cannot resell them to just anyone without them being registered (and they are not), should I incur income tax on them at this time? Am I "substantially vested" in the eyes of the IRS?

If they are taxable now, is there any way I can claim the loss in value ? I am broke (in part because I provided services to that company for no money) and it seems unfair that I should have to pay tax on $37,500 when the stocks are only worth $8,500 and I can't even sell them.

[Snipes5]

If there are restrictions on them preventing you from selling them... not just that you have to register them, but other restrictions, presuming that you can register them on your own if you wish to, then they wouldn't be taxable to you.

However, I would encourage you to look into this further. It sounds like the company should not have issued you a 1099 at this time, if they truly can't be freely sold.

A 1099-misc indicates to the IRS that the amounts are fully taxable unless you are able to show otherwise, via a tax return.

Snipes

Snipes, thank you for your reply. After 2 unreturned phone calls and an e-mail, I am getting no help from the issuing company. Their annual SEC filing lists the "registered securities for consulting services" that have been issued, but no mention made of any specific terms regarding them.

On the front of the stock certificate it says these are "fully paid and non-assessable shares of Common Stock ... transferable only on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed."

On the back the restrictive legend says that they are restricted securities as defined in Rule 144 and that they may not be sold or offered for sale except pursuant to an effective registration statement under the Securities Act of 1933, etc.

Sounds to me like the registration would be in the form of an S-8 by the company, so assuming these are the extent of the restrictions that apply, am I spared tax until I can sell them? How would I assert this in my tax return?