Hello all,
This is a rather complex one.
Suppose an employee has a separation agreement that entitles him to 50% of his annual salary in a lump sum. Employee is also entitled to equity in the company (25% is vested upfront, and 75% with accelerated vesting upon termination for any reason).
The parties agree that, in lieu of receiving the lump sum severance payment and other benefits, the company will repurchase 75% of the stock held by employee at a predetermined price, on a pre-determined future date (after the 1 year capital gains date).
1) Upon signing the separation agreement now, would the employee be in 'constructive receipt' of the cash from the repurchased stock, or would receipt only occur when the cash hits his account? This matters for the 1 year capital gains treatment, which occurs 2 months after the separation agreement will be signed.
2) Also, would cash from the repurchase of employee's stock be taxable as capital gains or ordinary income? This transaction would be arranged as a stock transfer agreement, but the purchase price would be set in the separation agreement, and is binding upon the employer.
Many thanks for your help!
