Section 83(b) allows an individual (executive or employee) to elect to recognize taxable income immediately upon the receipt of restricted stock or other property subject to a risk of forfeiture, even though the stock remains subject to a vesting schedule and the individual might later forfeit the property. 

As readers know, Section 83(b) allows an individual (executive or employee) to elect to recognize taxable income immediately upon the receipt of restricted stock or other property subject to a risk of forfeiture, even though the stock remains subject to a vesting schedule and the individual might later forfeit the property. Many executives file an 83(b) election as to restricted stock awards (and all executives file an 83(b) election as to profits interests from an LLC). Generally, they do this to start the long-term capital gains rate holding and taxation period.

On July 17, 2015, the IRS/Treasury Department proposed an amendment to the regulations under Code Section 83(b), which would eliminate the requirement that the executive/employee submit a copy of the 83(b) election with his or her income tax return. The proposed regulation would address the situation where the executive wishes to electronically file (e-file) his or her annual income tax return, but is unable to do so because of the requirement in Reg. §1.83-2(c) that the executive submit a copy of the 83(b) election with the return. As the IRS explains in the preamble to the proposed regulation:

Commercial software available for e-filing income tax returns does not consistently provide a mechanism for submitting a section 83(b) election with an individual’s e-filed return. As a result, an individual who has made a section 83(b) election may be unable to e-file his or her return and at the same time comply with the requirement in §1.83-2(c) that a copy of the section 83(b) election be submitted with the return. An individual who made a section 83(b) election would be required to paper file his or her income tax return to comply with the requirements under §1.83-2(c).

The proposed regulations would eliminate the requirement under Reg. §1.83-2(c) that a copy of the section 83(b) election be submitted with an individual’s tax return for the year the property is transferred. Section 83(b)(2) still will require that the executive file the 83(b) election with the IRS no later than 30 days after the date that the property is transferred to the executive. However, if the proposed regulation is finalized, beginning with property transferred on and after January 1, 2016, after the individual files his or her original 83(b) election, the IRS will scan and save it.