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Proposed IRS Regulations Simplify Section 83(b) Filing Requirements

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As explained in a prior blog post, an employee who timely files a Section 83(b) election will be taxed on the fair market value of property transferred (typically restricted stock) to him or her in exchange for services on the date of grant rather than as the stock vests.  In addition, by making a Section 83(b) election, the employee will start the clock on the capital gains holding period. The Section 83(b) election must be filed with the Internal Revenue Service within 30 days from the date on which the property is transferred to the employee.  In addition, the employee is required to provide a copy of the 83(b) election to his or her employer and must attach a copy of the election to his or her individual tax return for the year in which the election is made.

On July 17th, the IRS issued proposed regulations that change the election process described above.  Under the proposed regulations, a recipient of property will no longer need to attach a copy of the election to his or her individual tax return.  As described in the proposed regulations, the change is being made in response to the number of taxpayers that electronically file their returns.  Taxpayers that wish to electronically file their returns have been unable to do so because of the requirement that the taxpayer must attach a copy of the 83(b) election to the tax return.

The proposed rules apply to all property transferred in connection with the performance of services on or after January 1, 2016 but taxpayers may rely on the proposed regulations for property transferred on or after January 1, 2015.