Return to the facts of problem 63. If the stock is subject to substantial restrictions, what are the tax consequences for both Louise and Somerton on the date Louise is granted the stock option and the date she exercises the option, assuming that she does not make a Section 83(b) election? How would your answer change if she makes a Section 83(b) election and the fair market value of the stock when the restrictions lapse on March 31, 2021, is $22?

Data from Problem 63

On May 10, 2020, Somerton, Inc., grants Louise a nonqualified stock option to acquire 700 shares of the company’s stock for $11 per share. The fair market value of the stock on the date of grant is $13. The option does not have a readily ascertainable fair market value. On June 1, 2020, when the fair market value of the stock is $15, Louise exercises the stock option. Determine the tax consequences for Louise and Somerton on the grant date of the option and the exercise date.