Dieter has always enjoyed an adventure, so he has decided to leave his Carolina home and accept a position with a start- up company based in Seattle. The company is panning to develop and manufacture and market a product which will allow fo early detection f an oncoming cold before the virus enters the body. Dieter thinks that their product could end the "common cold" as we currently know it. As part of an enticement for Dieter to leave tranquil Carolina for rainy and dark Seattle, the company will be granting him 10,000 shares of Restricted Stock which is currently with $1 a share.The stock will vest at the end of year 3.

a. assuming dieter stays with the company thru at least year 3, what are the tax consequences to Dieter if the stock is worth $5 a share at the time. Dieter is in a 30% tax rate for ordinary income and a 15% rate for long term capital gains. Compute the tax consequences to Dieter in year 1 and year 3 in terms on income recognition and taxes due.

b. Now assume that dieter comes to you as soon as he learns that the grant of restricted stock is to be issued to him. He explains that another worker told him the the needs to "do an 83(b) election is. further, dieter explained to you that he believes the stock will appreciate tremendously from year 1 to year 3- what would you recommend: make an election, or tell his friend that his friend is getting bad tax advice? explain your answer.