On July 26, 2016, the IRS issued final regulations under Section 83 of the Internal Revenue Code of 1986, as amended (“Section 83”), eliminating the requirement for taxpayers to submit a copy of a Section 83(b) election with their tax returns for the year in which the relevant property is transferred.
Under Section 83, when property is transferred in connection with the performance of services, the service provider must include in gross income, (i) the fair market value of the property as of the first time the property is transferable or no longer “subject to a substantial risk of forfeiture,” less (ii) the amount (if any) paid for the property. Generally, this amount must be included in gross income in the first year that the property is transferable or is no longer subject to a substantial risk of forfeiture. However, an election can be made under Section 83(b) to include the fair market value of the property in gross income at the time of transfer.
To make an effective Section 83(b) election, taxpayers had been required to file a copy of the Section 83(b) election form with the IRS within thirty (30) days of the transfer of the property and to include a copy of the election form with their tax return. The final regulations eliminate the additional step of including a copy of the Section 83(b) election form with the taxpayer’s tax return. However, the taxpayer is still required to file a copy of the Section 83(b) election form with the IRS within thirty 30 days of the transfer of the property.
The regulations apply to property transferred on and after January 1, 2016. Taxpayers are also permitted to rely on the regulations for transfers made during 2015.
A copy of the final regulations can be obtained by clicking here.
If you have any questions regarding these issues, please contact your Executive Compensation and Employee Benefits counsel at Smith, Gambrell & Russell, LLP.
This client alert is intended to inform clients and other interested parties about legal matters of current interest and is not intended as legal advice.