New Regulation Eliminating Requirement to Attach 83(B) Election
By Monte Colbert, Director, Tax & Business Services
The IRS has announced a proposal in a recently released Notice that will ease some of the burden on taxpayers making a Section 83(b) election.
Up until this proposed change, taxpayers who made a Section 83(b) election were required to attach a copy of the election to their tax return. The requirement that the election be separately filed with the IRS within 30 days after the transfer of the property to the service provider has not changed.
The IRS identified that many of the software vendors that taxpayers use to prepare their tax returns did not support the electronic filing of the election. Therefore, taxpayers who needed to attach the Section 83(b) election to their tax return, were precluded from electronically filing.
The election under Section 83(b) allows the service provider to treat the non-vested property as if it were vested and to include the value in income when the property is received, rather than waiting for the vesting date. This technique is especially valuable when a service provider expects the value of the property received to appreciate and wants to have that appreciation be treated as capital gain rather than as ordinary income.
Under the Proposed Regulations, the need to submit a Section 83(b) election to a timely filed tax return would be eliminated. The IRS has determined that since the election that needs to be filed within 30 days after the transfer of the property generates an electronic copy for the agency’s records, there is no need for taxpayers to file an additional copy with a return. Since the IRS encourages all taxpayers to file their tax returns electronically, this obstacle to e-filing will be removed.
Taxpayers need to take note that the election must be filed within 30 days after the transfer and to keep support for the items on their returns until the statute of limitations expires.
These regulations are proposed to apply as of January 1, 2016 and would apply to property transferred on or after that date. However, taxpayers may rely on these proposed regulations for property transferred on or after January 1, 2015.