On February 20, 2013, Tom (an executive of Hawk Corporation; a calendar year corporation) purchased 100 shares of Hawk stock (selling at $20 a share) for $10. A condition of the transaction was that Tom must resell the stock to Hawk at cost if he voluntarily leaves the company within five years of receiving the stock (assume that this represents a substantial risk of forfeiture).

a. Assuming that no special election was made under § 83(b), what amount, if any, was taxable to Torn in 2013?

b. Five years later when the stock is selling for $40 a share, Tom is still employed by Hawk. What amount of ordinary income, if any, is taxable to Tom?

c. Five years later, what amount, if any, is deductible by Hawk as compensation expense?

d. Would it have been wise for Tom to make the § 83(b) special election in 2013? Why or why not? What amount would have been taxable in 2013 if he made the special election?

e. In part (d), what amount would be deductible by Hawk five years later? f. Under part (d), assume that Tom sold all of the stock six years later for $65 per share. How much capital gain is included in his gross income?