83(b) election by mistake/not restricted stock and really RSUs: What do?

I received a call from outside lawyer for a company. He did not really understand restricted stock compared to RSUs (if also confused see: http://bit.ly/9VwwVL). His client, a private company it appears, wanted to allow employees/executives getting grants to make 83(b) election. I don't know if the client also wanted to make them RSUs or the lawyer said you could do an 83(b) election with RSUs.

However, end result is company granted RSUs and told employees they can make 83(b) election. Some did last year and recognized income. Now lawyer or company discovers that employees cannot make 83(b) election for RSUs. So now what, particularly given income was recognized last year?

Can company/law firm just tell employees there was mistake of fact or another reasonable/honest excuse, and then amend outstanding RSU grant to turn into restricted stock? Any 409A issues? Or must company repeal the grant and make new one, then what are the tax and accounting implications for company and employees? Various issues involved in this situation.

Thanks for your thoughts on this interesting situation.

Bruce Brumberg, Editor
www.myStockoOptions.com and www.myNQDC.com