IRS: SECTION 83(B) ELECTION STATEMENTS NO LONGER WEDDED TO PAPER FILINGS

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Taxpayers making elections under Section 83(b) of the Internal Revenue Code are no longer restricted to the antiquated method of paper filing their federal income tax returns because the amended rule eliminates the requirement for taxpayers to submit a copy of Section 83(b) election statements with their tax returns. 

Under Section 83(b), taxpayers can reap significant tax benefits for property received in connection with the performance of services. Section 83(b) elections often involve grants of restricted stock to executives.

The Internal Revenue Service issued final rules July 25, eliminating the procedural requirement for taxpayers to submit a copy of Section 83(b) election statements with their federal income tax returns (T.D. 9779; RIN:1545-BM63). The final rules were adopted with no changes to the proposed rules, which were originally issued in 2015.

Section 83(b) Election Requirements

Treas. Reg. § 1.83-2 imposes strict requirements on taxpayers making Section 83(b) elections.  Section 83(b) election statements must contain the following information: 

  • Name, address and taxpayer identification number;
  • Description of each property subject to the election;
  • Date the property is transferred and taxable year;
  • Nature of the restriction(s) applicable to the property;
  • Fair market value of each property at the time of transfer; and
  • Amount the taxpayer paid for the property, if any.

Taxpayers additionally must satisfy the following procedural requirements:

  • File Section 83(b) election statements with the IRS no later than 30 days after the transfer of the property;
  • Submit copy of Section 83(b) election statements with their federal income tax return in the year that the property was transferred; and
  • Provide Section 83(b) election statements to the entity for whom the services are performed.

2015 Proposed Rules and the Need for Change

The IRS issued the 2015 Proposed Rules to streamline Section 83(b) election requirements with the option for taxpayers to electronically file (e-file) their federal income tax returns.  Treas. Reg. § 1.83-2(c), in part, requires taxpayers to submit a copy of Section 83(b) election statements with their federal income tax returns in the year that the property was transferred. The IRS acknowledged that this rule restricted taxpayers to paper filing their federal income tax returns and proposed to amend Treas. Reg. § 1.83-2(c) by eliminating the need to submit a copy of Section 83(b) election statements with federal income tax returns. The IRS, however, reminded taxpayers to retain documentation supporting Section 83(b) elections until the expiration of the statute of limitations period.

Veena Murthy of Mercer LLC told Bloomberg BNA Aug. 18, “The change to the Section 83 regulations (taxpayers no longer need to attach a copy of their 83(b) election with their tax return) are really about bringing these requirements in line with changes in technology since the regulations were first enacted. First, the IRS now has the ability to scan 83(b) elections received within 30 days after grant of the related award -- so the IRS has said it doesn't need another copy when the taxpayer sends in the tax return the following April 15.  From the taxpayer perspective, most taxpayers now e-file returns and there isn't a way to attach the 83(b) election when e-filing. ‎Taxpayers would have worried they didn't meet the technical regulation requirements if the regulation hadn't been amended -- so this helps relieve that concern.”  

Effective Date

The final rules became effective on July 26, 2016, to property transferred on or after Jan. 1, 2016.  For property transferred between Jan. 1, 2015 and Jan 1. 2016, taxpayers can rely on the 2015 Proposed Rules, which are identical to the final rules. 

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