Taxpayers who receive property as payment for performing services are generally taxable on the value of the property received in the year of receipt. Section 83 may allow such taxation to be deferred when the property received is subject to a substantial risk of forfeiture (e.g., an employee is issued stock, but will forfeit it if he quits or is fired) until the risk of forfeiture is removed.
Such a delay can hurt the employee, since the value of the property may increase before the risk of forfeiture is removed – the employee is required to include the value of property in income based on the value at the time such forfeiture risk goes away.
Section 83(b) provides relief to the employee – the employee can file an election with the IRS within 30 days of receiving the property to include it in income in the year of receipt even if there is a substantial risk of forfeiture. An employee may want to do this if he or she believes the current value is low, and the value later when the risk of forfeiture disappears may be materially higher.
To make a valid election, the regulations also require that a copy of the election be filed with the employee’s income tax return for the year of the election. This is a trap for an employee who forgets to do this.
This last requirement to file a copy with the tax return has now been removed in newly adopted Treas. Regs. § 1.83-2(c). To make the election, all that is needed now is the filing of the election within 30 days of receiving the property.
This change does not appear to be motivated by a desire to remove a trap for taxpayers – instead, it is in acknowledgment of the difficulty of filing a copy of an election if the tax return is filed electronically.
T.D. 9779, 07/25/2016, Reg. § 1.83-2
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