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Restricted Stock Taxation upon termination

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reststock

Junior Member
Massachusetts / New York.

I was employed at my former employer for 3+ years, until April, 2008. Each year, I received restricted stock grants with 5 year vesting (20% a year). The restricted stock agreement stipulated that the grants would be forfeited if I went to work for a competitor. In April, I was let go during a firmwide downsizing, and at the non-compete clause for the restricted stock grants was waived. HR officials indicated to me that my restricted stock grants would continue to vest as per the original 5-year vesting schedule.

Approximately one month later, my former employer informed me that, since the non-compete clause had been removed, the IRS position was that there was no risk of forfeiture and, as a result, the IRS viewed the entire unvested restricted stock balance as taxable current income in 2008. As a result, I was told to pay up taxes for the entire unvested amounts in 2008, or have the equivalent amount of restricted shares withheld.

My question is, is this in fact the IRS position. I know other employees that owned the same type of restricted stock grants, that were not taxed upfront (i.e. they will continue to vest with the original 5 year schedule, but will pay taxes only upon vesting). They too had the non-compete clause waived.

If anyone has encountered a situation like this before, please advise. It doesn't make sense to be taxed today for stock that can't be sold for several years.What is the name of your state (only U.S. law)?
 


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