IRS Issues Final Regulations on Substantial Risk of Forfeiture

摘要

The nature of the transaction in which stock is transferred for services frequently involve conditions creating the risk of forfeiture, which are designed to provide an incentive for performance by the employee that correlates to increasing the value of the business. Determining whether a particular condition creates a substantial risk of forfeiture is the key to legally deferring compensation income. Regardless of the specific vesting conditions chosen, the condition must be substantial or the risk of forfeiture will be disregarded. The new regulations may cause more taxpayers to accelerate the recognition of income for the stock received for performing services. Businesses should pro-actively review their compensation arrangements to ensure that they are not unpleasantly surprised now that the regulations are finalized.