By Jennifer F. Flinchum, CPA, CFP®, Partner | Tax Department Leader
The IRS recently issued final regulations (TD 9779) related to IRC Section 83(b) which adopted the 2015 proposed regulations. The final regulations eliminate the requirement for taxpayers to submit a copy of the IRC Section 83(b) election with their tax return for the year of the property transfer. CAUTION: There is NO change to the requirement to submit the election to the IRS within 30 days of the property transfer and also to provide a copy of such election to the employer. Taxpayers should pay attention to the form of the election to be sure the requirements of IRC 83(b) are strictly followed.
As a reminder IRC Section 83(b) elections allow taxpayers to choose to include in income the value of non-vested property received for the performance of services in the year the property is received, rather than delaying the income inclusion until the property substantially vests (no longer subject to a substantial risk of forfeiture or is freely transferable, whichever occurs earlier). Non-vested property is generally, but not always, Restricted Stock. The income amount is the fair market value of the property transferred less any amounts paid for such property. Taxpayer’s should consider whether the current fair market value is likely to be substantially less than the fair market value at the time of vesting. If yes, making the IRC 83(b) election and including the income currently may save taxes overall (even through taxes will be accelerated). This decision can be extremely complex with numerous economic and tax factors.
The elimination of the need to attach the IRC Section 83(b) election to the income tax return will allow more taxpayers to be able to e-file.
The final regulations apply to property transfers on or after 1/1/16, but taxpayers may rely on the identical guidance in the proposed regulations of property transfers after 1/1/15 and before 1/1/16. (Reg. 1.83-2)
Please consult your Keiter tax advisor to help determine whether to make such an election. Be sure to consult immediately as the 30 day requirement to file the election is a strict deadline.
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Jen is the lead partner of Keiter’s tax services group, a member of Keiter’s Executive Committee, and a Manufacturing Industry team leader. Jen applies her significant experience in tax compliance and strategic consulting for both privately held businesses and their owners. She identifies tax credit opportunities (both federal and state) which have resulted in substantial savings for both corporate and individual clients. Read more of Jen’s tax insights on our blog.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.