The NASPP Blog

IRS Amends Section 83(b) Election Procedures

In what is possibly the least controversial decision ever made by the IRS, the agency has adopted its proposed amendment to the procedures for filing Section 83(b) elections, eliminating the requirement that taxpayers file a copy of the election with their tax return for the year that they make the election.

It’s Nice that We Can All Agree on Something

The amendment, which was proposed last year (see “IRS Proposes Amendment to 83(b) Election,” received no comments at all. Zip. Zero. No one requested a public hearing and no hearings were held. Cue the sound of crickets (ok, technically that’s the sound of frogs—I don’t have a video of cricket sounds). Hence the amendment was adopted with no changes from the original proposal.

Background

In the context of stock compensation, Section 83(b) elections are most frequently filed when employees exercise stock options prior to vesting.  They are also sometimes filed upon grant of restricted stock. The election accelerates the taxable event for the award to the date of exercise (in the case of stock options) or grant (in the case of restricted stock). Employees wishing to file a Section 83(b) election must submit the election to their IRS service center within 30 days of the event triggering the election. Employees must also provide a copy of the election to their employer.  Prior to this proposed amendment, a copy of the election also had to be included with employees’ tax returns for the year.

Now that the IRS is encouraging taxpayers to file tax returns electronically, the requirement to include the election with tax returns has proved to be problematic, since few efiling systems can attach a scanned document to the return. There was also a concern that taxpayers might be able to revoke an election after the 30-day election period by simply failing to include it with their tax return.

Effective Date

The amendment is effective for transactions occurring on or after January 1, 2016 but the IRS permitted taxpayers to rely on it for Section 83(b) elections filed in 2015. For more information, see the NASPP Alert “IRS Finalizes Amendment to Section 83(b) Election.”

More Frogs and Tax Developments

I took that frog sound video when I was visiting the Hilton Americas – Houston where the 24th Annual NASPP Conference will be held. It’s at a pond in the park across the street from the hotel.  You know what else you can do in Houston besides hear the awesome sound of frogs at night?  You can get an update on this and other recent tax developments directly from IRS and Treasury staffers during the session “The IRS and Treasury Speak.”  Register by September 9 for the early-bird discount.

– Barbara