Gifting restricted stock

[qman]

Here is the scenario:

We have a privately held Delaware C-Corporation. One of the owners has fully vested restricted stock that, due to a redemption event, is not considered to be qualified small business stock. The owner would like to *gift* some of this stock to others in the company.

With respect to the above, our questions are:

1. If the value of the stock to be transferred to each individual is less than the IRS gift tax exemption of $14,000 per year, are there any taxes to be paid?

2. If an 83(b) election was filed on the original stock, and the stock is now fully vested, does the 83(b) treatment continue to apply to the gifted stock for the benefit of the new owner?

3. Is there any issue with a gift-based transfer of stock to a related party in a company (i.e. between employees or existing shareholders).

Thanks!

 

[FlyingRon]

1. While $14,000 is the reporting level, no gift tax is due until the aggregate gifts over the person's lifetime hits $5,450,0000
2. Each owner needs to make his own 83(b) election, though if the stock is fully vested, I'm not sure what the 83(b) election is going to do for you.
3. It's likely to be considered income rather than a gift is the biggest issue when employees receive stock.

 

[LdiJ]

1. While $14,000 is the reporting level, no gift tax is due until the aggregate gifts over the person's lifetime hits $5,450,0000
2. Each owner needs to make his own 83(b) election, though if the stock is fully vested, I'm not sure what the 83(b) election is going to do for you.
3. It's likely to be considered income rather than a gift is the biggest issue when employees receive stock.

The relationships between the parties could factor into whether or not it might be a valid gift. If someone is a majority shareholder in a corporation and their children and/or grandchildren work for them, then it might be persuasive as a family gift. However, if the gift of the shares is a thank you to longer term, unrelated employees, then its more likely to be considered to be income.