I have come across a few deals to this point that have a key employee in place. My thoughts are to gift a small portion of equity initial and establish performance and retention options for the remaining amount in hopes of retaining that employee. The pool of equity would be a blending of the seller and buyer, say 10% in total, with 5% upfront and 1% per year thereafter up to year 5.

My question is who is on the hook for the tax liability (if any) for the gifting of equity and is there any way to mitigate or reduce that liability if it exists?