What is a substantial risk of forfeiture?
A substantial risk of forfeiture is a standard applied by the Internal Revenue Service (IRS) to determine whether deferred compensation and transfers of property should be taxed currently to the payee. Generally, a substantial risk of forfeiture exists if an employee’s right to deferred compensation or transferred property is contingent on the performance of substantial services in the future or on the occurrence (or nonoccurrence) of a given event. If these contingencies aren’t met, the compensation or property is forfeited. When property is no longer subject to a substantial risk of forfeiture, it is usually said to have “vested.
