When an employer gives shares of stock (or bonds) to employees as remuneration for services, the fair market value of the stock (or bond) at the time of payment is wages.

If the stock is subject to a substantial risk of forfeiture (see
RS 01401.090B.), the fair market value of the stock at the time the risk lapses is wages.

If the stock was never traded on any exchange, use:

• •

  the purchase price for similar shares of company stock (or bonds) on or about the date of the transfer; or

• •

  the monetary value set by the company.

When an employee exercises (uses) a nonstatutory stock option (one to which the deferred-taxation provisions of the IRC do not apply) under which the employee has an unconditional right to receive the stock upon payment of the option price, the difference between the fair market value of the stock on the date of exercise and the option price is wages.

REFERENCE: Stock purchase plans, RS 01402.125.