On January 15, 2014, MM Corporation grants Helen an option to purchase 100 shares of MM stock for $7 per share. The option is non-transferable but immediately exercisable. If the option is exercised, the stock received is subject to a vesting schedule requiring Helen to be employed on January 15, 2017.

Assume Helen exercises the option on January 20, 2015, when the stock is worth $10 per share, and that she is still employed on January 15, 2017, when the stock is worth $12. Helen sells the stock on May 5, 2017, for $25 per share.

What are the tax consequences on the following dates?

(a) January 15, 2012 (Grant)

(b) January 20, 2013 (Exercise of option)

(c) January 15, 2015 (Vesting in stock)

(d) May 5, 2015 (Sale of stock)

Assume that Helen makes an 83(b) election when the option is exercised.

What are the tax consequences on the following dates?

(a) January 15, 2012 (Grant)

(b) January 20, 2013 (Exercise of option)

(c) January 15, 2015 (Vesting in stock)

(d) May 5, 2015 (Sale of stock)

What is the effect of the 83(b) election?