As reported in the June 2012 Employee Benefits Update, the IRS recently issued proposed regulations under Code section 83 clarifying the meaning of “substantial risk of forfeiture” and tightening rules for deferring income when property is received in connection with the performance of services. Code section 83(b) allows an individual to make an election to include in gross income the fair market value of the property received as compensation for services (less any amount paid for the property) at the time the property is transferred to the service provider. The election must include specific information and be filed with the IRS within 30 days after the date the property is transferred.
The IRS has issued Revenue Procedure 2012-29, which provides examples of the tax consequences for making a Code section 83(b) election and includes a sample election form. If properly completed and executed, the election form will satisfy the requirements under the regulations. For the election to be valid, the taxpayer must comply with other applicable requirements, including attaching a copy of the form with his or her tax return and providing a copy to the service recipient.