RSH » Topics » Federal Income Tax Consequences

This excerpt taken from the RSH DEF 14A filed Apr 12, 2007.

Federal Income Tax Consequences

The following discussion of the Federal tax consequences of the plan is based on the provisions of the Internal Revenue Code currently in effect, current regulations, and administrative rulings of the Internal Revenue Service. The discussion is limited to the tax consequences on United States citizens and does not consider the potential impact of state or local tax laws. It is not intended to be a complete discussion of all of the United States income tax consequences of the plan or of all of the requirements that must be satisfied to qualify for the tax treatment described in this discussion. Changes in the law and the regulations may modify the discussion, and, in some cases, changes may be retroactive. In addition, tax consequences may vary depending upon the personal circumstances of individual holders of stock and the tax requirements applicable to residents of countries other than the United States.

With respect to a grant, unless an officer makes an election under Section 83(b) of the Internal Revenue Code (83(b) election), as described below, the officer will generally recognize ordinary compensation income in an amount equal to the fair market value of the shares subject to the grant of restricted stock at the time the restricted stock ceases to be subject to forfeiture. Dividends paid to an officer on the shares of restricted stock where no 83(b) election is made are treated as compensation income of the executive in the year received. The officer’s holding period for long-term capital gains purposes will not begin to run until the stock becomes unrestricted.

With respect to a grant, an officer may make an 83(b) election. If an officer makes an 83(b) election within the required period of thirty days after receipt of the restricted stock, the officer will be immediately taxed, as compensation income, on the fair market value of the restricted stock issued to the officer, valued on the date of grant. Any dividends received on stock subject to an 83(b) election will be treated as ordinary dividend income. Where an 83(b) election is made, an officer’s holding period for long-term capital gains purposes begins to run on receipt of the restricted stock. A forfeiture of restricted stock after an 83(b) election is made, even though the officer has included the stock as income, does not entitle the executive to a tax deductible loss if no amount was paid for the restricted stock by the officer.

Awards of restricted stock generally will not be subject to the requirements of Section 409A of the Internal Revenue Code. Payments of dividends on such awards also will be structured in such a manner as to avoid application of Section 409A.

Subject to the limitations of deductibility contained in Section 162(m) of the Internal Revenue Code, RadioShack will receive a deduction for Federal income tax purposes equal to the compensation income recognized by the officer receiving the grant.

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