Tax implications of ESPP shares when company is bought out
When the deal closes, will it be as if I sold all of my ESPP shares   with regards to taxes? Probably. If the deal is for cash and not stock exchange, then once the deal is approved and closed all the existing shareholders will sell their shares to the buyer for cash. Is there any way to mitigate this? Unlikely. You need to understand that ESPP is just a specific way to purchase shares, it doesn't give you any special rights or protections that other shareholders don't have.
Here is how it should look: 100 shares of restricted stock (RSU) vest. 25 shares sold to pay for taxes. W2 (and probably paycheck) shows your income going up by 100 shares worth and your taxes withheld going up by 25 shares worth. Now you own 75 shares with after-tax money. If you stop here, there would be no stock sale and no tax issues.  You'd have just earned W2 income and withheld taxes through your W2 job. Now, when you sell those 75 shares whether it is the same day or years later, the basis for those 75 shares is adjusted by the amount that went in to your W2.   So if they were bought for $20, your adjusted basis would be 75*$20. Other than the guaranteed 5% bonus (assuming you sell it right away), no benefits. Keep in mind that the price from which the discount is calculated is not necessarily the market price at the date of the ESPP purchase, so the actual discount may be more than 5% (depending on the volatility of the stock - much more). If the $882 is reported on W2 as your income then it is added to your taxable income on W2 and is taxed as salary. Your basis then becomes $5882. If it is not reported on your W2 - you need to add it yourself. Its salary income. If its not properly reported on W2 it may have some issues with FICA, so I suggest talking to your salary department to verify it is. In any case, this is not short term capital gain. Your broker may or may not be aware of the reporting on W2, and if they report the basis as $5000 on your 1099, when you fill your tax form you can add a statement that it is ESPP reported on W2 and change the basis to correct one. H&R Block and TurboTax both support that (you need to chose the correct type of investment there). I would ask your HR or benefits department to be certain, but here's how I read that without any specific knowledge of the situation: What is right to receive the RSU consideration? Company A was bought by Company B.  You had unvested Restricted Stock Units in A, which is now gone.  B is saying that you now have the right to receive consideration equivalent to the value of those RSUs in A. Since B is private, there's no publicly traded stock, so it will likely be in cash, but read the rest of the paperwork or talk to HR to be certain.   For example, if you had 100 RSUs vesting next year and the price of stock in A was $50 when the company was bought, those RSUs would be worth $5,000.  B is give you the right to consideration for those RSUs, hopefully for somewhere around $5,000.  That consideration is unvested, meaning you must stay employed until the vesting period in order to claim that right. If you are fired without cause (i.e. laid off), you will receive those unvested claims as compensation.   I assume the same will be applicable if employee leaves the company  Probably not.  In any situation, if you voluntarily leave a company, any unvested stock, RSUs, options, etc. are forfeited. For every document that the IRS posts, there will be a correlating instructions page. This would be the instructions for the 1099-B, here. Furthermore, as you will be reporting this on Form 8949, as a substitute for previously used Schedule D; instructions are here.This article explains that the best course of action is to donate the shares as the cost basis would switch to FMV (fair market value) of the assets today. But as this did not happen, I would recommend contacting the purchasing company directly. Being a share holder, and by purchasing the shares from the source, the accounting department should still have recorded the date of purchase along with the price sold. It may take effort to prove who you are, but if their accounting records are well documented, this will not be an issue.  If nothing else, claim a 100% capital gain on the entirety of the sale, and pay the tax. That is stated here. There are two things to consider: taxes - beneficial treatment for long-term holding, and for ESPP's you can get lower taxes on higher earnings. Also, depending on local laws, some share schemes allow one to avoid some or all on the income tax. For example, in the UK £2000 in shares is treated differently to 2000 in cash vesting - restricted stocks or options can only be sold/exercised years after being granted, as long as the employee keeps his part of the contract (usually - staying at the same place of works through the vesting period). This means job retention for the employees, that's why they don't really care if you exercise the same day or not, they care that you actually keep working until the day when you can exercise arrives. By then you'll get more grants you'll want to wait to vest, and so on. This would keep you at the same place of work for a long time because by quitting you'd be forfeiting the grants. The tax cost at election should be zero.  The appreciation is all capital gain beyond your basis, which will be the value at election. IRC §83 applies to property received as compensation for services, where the property is still subject to a substantial risk of forfeiture.  It will catch unvested equity given to employees. §83(a) stops taxation until the substantial risk of forfeiture abates (i.e. no tax until stock vests) since the item is revocable and not yet truly income.  §83(b) allows the taxpayer to make a quick election (up to 30 days after transfer - firm deadline!) to waive the substantial risk of forfeiture (e.g. treat shares as vested today). The normal operation of §83 takes over after election and the taxable income is generally the value of the vested property minus the price paid for it.  If you paid fair market value today, then the difference is zero and your income from the shares is zero. The shares are now yours for tax purposes, though not for legal purposes.  That means they are most likely a capital asset in your hands, like other stocks you own or trade.  The shares will not be treated as compensation income on vesting, and vesting is not a tax matter for elected shares. If you sell them, you get capital gain (with tax dependent on your holding period) over a basis equal to FMV at the election.  The appreciation past election-FMV will be capital gain, rather than ordinary income.  This is why the §83(b) election is so valuable.  It does not matter at this point whether you bought the restricted shares at FMV or at discount (or received them free) - that only affects the taxes upon §83(b) election. You have a lot of different questions in your post - I am only responding to the request for how to value the ESPP. When valuing an ESPP, don't think about what you might sell the shares for in the future, think about what the market would charge you for that option today. In general, an option is worth much less than the underlying share itself. For the simplest example, assume you work at a public company, and your exercise price for your options is $.30, and you can only exercise those options until the end of today, and the cost of the shares on the public stock exchange is also $.30. You have the same 'strike price' as everyone else in the market, making your option worth nothing. In truth, holding that right to a specific strike price into the future does give you value, because it means you can realize the upside in share price gains, without risking any money on share losses. So, how do you value the options? If it's a public company with an active options market, you can easily compare your $.30 strike price with the value of call options in the market that have a $.30 strike price. That becomes the value to you of the option (caveat: it is unlikely you can find an exact match for the terms of your vesting period, but you should be able to find a good starting point). If it's a public company without an active options market, you will have to do a bit of estimation. If a current share is worth $.25 (so, close to your strike price), then your option is worth a little bit, but not much. Compare other shares in your industry / company size to get examples of the relative value between an option and a share. If the current share price is worth $.35, then your option is worth about $.05 [the $.05 profit you could get by immediately exercising and selling, plus a bit more for an option on a share that you can't buy in the open market]. If it's a private company, then you need to be very clear on how shares are to be valued, and what methods you have available to sell back to the company / other individuals. You can then consider as per above, how to value the option for a share, vs the share itself. Without a clear way to sell your shares of a private company [ideally through a sale directly back to the company that you are able to force them to agree on; ie: the company will buyback shares at 5x Net income for the previous year, or something like that], then the value of a small number of shares is very nebulous. There is an extremely limited market for shares of private companies, if you don't own enough to exert control. In your case, because the valuation appears to be $2/share [be sure that these are the same share classes you have the option to buy], your option would be worth a little more than $1.70, if you didn't have to wait 4 years to exercise it. This would be total compensation of about $10k, if you were able to exercise today. Many people don't end up working for an early job in their career for 4 years, so you need to consider whether how much that will reduce the value of the ESPP for you personally. Compared with salary of 90k, 10k worth of stock in 4 years may not be a heavy motivating compensation consideration. Note also that because the company is not public, the valuation of $2/share should be taken with a grain of salt. the implications are that the company's earnings per share may seem greater, (after the company buys them there will be less shares outstanding), giving wall street the impression that there is more growth potential than there really is. its an accounting gimmick that can work for a few quarters while the company evaluates how else to impress wall street You might be right about that, but your previous posts don't say that.  In just the last one you said:  &gt;Because buyback decreases shares outstanding it **also decreases the company's total future dividend payouts as well**  This is indicating that you believe there is a difference somehow, no? "This is a great question.  I've participated in a deal like that as an employee, and I also know of friends and family who have been involved during a buyout.  In short:  The updated part of your question is correct: There is no single typical treatment.  What happens to unvested restricted stock units (RSUs), unvested employee stock options, etc. varies from case to case. Furthermore, what exactly will happen in your case ought to have been described in the grant documentation which you (hopefully) received when you were issued restricted stock in the first place. Anyway, here are the two cases I've seen happen before: Immediate vesting of all units.  Immediate vesting is often the case with RSUs or options that are granted to executives or key employees.  The grant documentation usually details the cases that will have immediate vesting.  One of the cases is usually a Change in/of Control (CIC or COC) provision, triggered in a buyout.  Other immediate vesting cases may be when the key employee is terminated without cause, or dies.  The terms vary, and are often negotiated by shrewd key employees. Conversion of the units to a new schedule.  If anything is more ""typical"" of regular employee-level grants, I think this one would be.  Generally, such RSU or option grants will be converted, at the deal price, to a new schedule with identical dates and vesting percentages, but a new number of units and dollar amount or strike price, usually so the end result would have been the same as before the deal. I'm also curious if anybody else has been through a buyout, or knows anybody who has been through a buyout, and how they were treated." It really depends.  If it is offered as compensation (ie in leiu of, or in addition to salary or cash bonus) then it would be reportable income, and if sold later for a profit then that would be taxable as gains.  If this share is purchased as an investment at current value then it would be treated like other securities most likely gains realized at sale.  Any discount could be considered income but there are some goofy rules surrounding this enacted to prevent tax evasion and some to spur growth.  That is the answer in a nut shell.  It is far more complicated in reality as there are somewhere around 2000 pages of regulations deal with different exceptions and scenerios. For the employee, this is an identical tax situation to an at-the-money option purchase. They're buying an asset with a specific cost basis. For the company, you are just issuing shares from treasury as authorized... debit cash, credit additional paid-in-capital and equity. There is no tax consequence for this money received. It basically only affects the company's dealings with its own stock, not with operational concerns.  If the company were to offer more stock for sale, it would get less cash.  If it had a stock buy-back program, it could buy more shares for the same money.  If it was to offer to acquire another company in exchange for its own stock, the terms would be less attractive to the other company's owners.  Employee stock remuneration, stock options, and so forth would be affected, so there might be considerations and tax consequences for the company. Is this an employee stock purchase plan (ESPP)? If so, and there is no required holding period, selling right away is essentially a guaranteed bonus with minimal risk. One caveat is that sometimes it takes a while to actually receive the shares at your brokerage, and in the meantime your company may have an earnings report that could cause the share price to drop. If your discount is only 5%, for example, a bad earnings report could easily wipe that out. The only other cons I can think of is ESPP contributions being withheld from you for months (albeit for a virtually guaranteed return), and it complicates your taxes a bit. On the flip side, another pro is that after you sell the shares, you are more likely to invest that money rather than spend it.