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July 25 — Individuals who receive property related to the performance of services and choose to include the value in their income no longer have to file a copy of the written election statement with their tax returns, the IRS said in final rules.
The rules (T.D. 9779, RIN:1545-BM63), issued July 25, make no changes to proposed rules (REG-135524-14) issued in July 2015. Previously, the statement had to be filed with the Internal Revenue Service, along with an income tax return, no later than 30 days after the date of the transfer, under Revenue Procedure 2012-29, according to the final rules (137 DTR G-1, 7/17/15).
If an individual makes a tax code Section 83(b) election, the property is included in income as ordinary income based on the fair market value of the property on the date of the election.
The rules apply to property transferred on or after Jan. 1, 2016. For property transfers in 2015, taxpayers can also rely on the guidance on the final regulations, the IRS said.
The change is “a very large benefit” for people who are nonresidents and plan to become U.S. residents in the future, Kevin Hall, an associate at Holland & Knight LLP, told Bloomberg BNA July 25.
If an individual who later becomes a U.S. resident receives unvested equity compensation but doesn't make the election, they would face U.S. tax on the entire value of the property once it vests, he said. Equity-based compensation includes restricted stock or stock options.
The “biggest obstacle” for nonresidents making the election is realizing they could be impacted once the property vests, he said. Previously, they would have had to file the election along with an income tax return, even if they didn't otherwise have a U.S. tax obligation, he said.
“Removing this obligation to make this election makes it a little easier for nonresidents to comply,” Hall said.
The IRS received no comments on the proposed rules. The regulations are scheduled to be published in the Federal Register on July 26.
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Text of T.D. 9779 is in TaxCore.
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