Tax - Substantial Risk of Forfeiture (SROF)
Applicable Definitions of Substantial Risk of Forfeiture (SROF)
2017.04.24 Earn-out + ESOP Fiduciary Duty= SROF. In Austin v. Commissioner, the Tax Court rejected arguments that two 47.5% shareholders were not taxable on their restricted stock awards at the time of grant because, quoting from the decision:
2014.JulyTax Court Examines SROF from Termination for Cause. See this Journal of Accountancy article.
2014.Jan.31 Final §83 SROF Rules Maintain Status Quo. In T.D. 9659, the IRS clarifies existing authority by confirming that --
2013.Dec. 16 SROF Recognized despite being defined as "Cause" for Termination. Because the definition of "Cause" applicable to restricted stock included a failure to faithfully and diligently perform the usual and customary duties of the company president's employment, the Tax Court held that the risk of forfeiture could be a sufficiently substantial earn-out restriction to constitute a SROF. Austin v. Commissioner, 141 T.C. No. 18, holding that:
2012 SROF Standard Articulated in Proposed Regulations. The IRS and Treasury Department have issued Prop. Treas. Reg. Section 1.83-3 to clarify what constitutes a "substantial risk of forfeiture" for purposes of Code Section 83. In particular, the proposed regulations state that a substantial risk of forfeiture may consist only of a service condition or a condition related to the purpose of the transfer. Additionally, the regulations make clear that the likelihood that the condition will occur must be considered when determining whether a substantial risk of forfeiture exists. Finally, except in limited circumstances, transfer restrictions will not constitute a substantial risk of forfeiture.
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