Estate of Kechijian v. Commissioner (962 F.3d 800 (4th Cir. 2020)) is the third opinion addressing tax consequences of a 1998 acquisition of stock by Larry Austin and Arthur Kechijian. The acquisition was made subject to a condition treated by the individuals as a “substantial risk of forfeiture” (SROF) within the meaning of Section 83 of the Internal Revenue Code. When the forfeiture condition later lapsed, each of the individuals tried to avoid recognition of substantial compensation income by surrendering shares and then immediately purchasing identical shares for a promissory note.

The individuals prevailed in an initial challenge by the government to their position that the stock was acquired subject to a SROF, but they could not avoid compensation income in the later year. The decisions provide guidance on when stock will be considered to be subject to a SROF and on the tax rescission doctrine.