On July 25, 2016, the IRS issued final regulations under Section 83 of the Internal Revenue Code (the “Code”) simplifying the process by which taxpayers may make elections under Code Section 83(b) by eliminating one of the filing requirements. These final regulations adopt without change proposed regulations that were issued in July 2015.
As a reminder, Code Section 83 sets forth the rules governing the compensatory transfer of property (i.e., property transferred in connection with the performance of services). Under those rules, a taxpayer generally must include in his or her taxable income the excess of the fair market value of such transferred property over the price, if any, the taxpayer paid for the property as of the first time the property is no longer subject to a substantial risk of forfeiture. Section 83(b) permits a taxpayer to accelerate the time in which such amount is included in his or her income by making an affirmative written election within 30 days of the transfer of the property (such as the grant date of a restricted stock award) to include the value of the property in the taxpayer’s income as of the date of transfer. Under previous rules, copies of the written election were required to be filed with (1) the IRS within 30 days after the transfer of the property and (2) the taxpayer’s tax return for the year in which the election was made. This prevented taxpayers making 83(b) elections from filing their tax returns electronically, because there was no method available for also filing the 83(b) elections electronically. The final regulations eliminate the requirement for taxpayers to file a copy of the 83(b) election with their tax returns, thereby simplifying the Section 83(b) election process and permitting taxpayers to file their tax returns electronically if desired.
The final regulations apply to compensatory transfers of property occurring on or after January 1, 2016.