Recently issued final regulations under Internal Revenue Code Section 83 (the Final Regulations) remove the requirement that taxpayers must submit a copy of an election made under Code Section 83(b) with the taxpayer's income tax return. These Final Regulations finalize, without any modifications, the related proposed regulations previously issued in July 2015 (the Proposed Regulations).

Background

Generally, Code Section 83(a) provides that a taxpayer who is an employee (or other service provider) to whom certain property transferred in connection with the performance of services—for example, an award of restricted stock granted by the company employing the taxpayer—must recognize income with respect to the property in the year in which the property vests (that is, the earlier of the date the property first becomes transferrable or no longer is subject to a substantial risk of forfeiture). The amount included in income is the excess of the fair market value of the transferred property at vesting, over the amount (if any) paid for the property. However, Code Section 83(b) generally permits the taxpayer to make an election (an 83(b) election) to recognize income on the transferred property at the time of transfer. If an 83(b) election is made, the income is recognized in an amount equal to the excess of the fair market value of the property at the time of transfer over the amount (if any) paid for the property. As a result of an 83(b) election, income is recognized on the property in the year of transfer, rather than in a potentially later year when the property first becomes vested.

Final Regulations

The Final Regulations eliminate the requirement that the taxpayer file a copy of the 83(b) election with his or her income tax return for the year in which the property is transferred. The removal of this requirement should alleviate some burden on taxpayers when filing their income tax returns, and in particular make it easier for taxpayers to file income tax returns electronically (e-file).

Important: A taxpayer still is required to file the 83(b) election with the IRS no later than 30 days after the property is transferred. There are no exceptions to this timing requirement. A taxpayer also still is required to submit a copy of the 83(b) election to his or her employer.

The Final Regulations are effective for property transferred on or after January 1, 2016. In addition, for property transferred on or after January 1, 2015, but before January 1, 2016, taxpayers may rely on the Proposed Regulations, which provide the same rules as the Final Regulations in eliminating the need to submit a copy of any 83(b) elections with the taxpayer's income tax return.