IRS Eases Rules for Filing Section 83(b) Election

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Taxpayers no longer have to attach a copy of a Section 83(b) election to their income tax return for the year in which the election was applicable, according to final regulations recently issued by the IRS.

Section 83 of the tax code outlines the tax consequences of a transfer of property in connection with the performance of services.

Under Section 83(b), a taxpayer is permitted to elect to include in gross income as compensation for services the excess, if any, of the fair market value of the property at the time of the transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) over the amount, if any, paid for the property.

The election must be filed with the IRS no later than 30 days after the date on which the property is transferred. Taxpayers also had to include a copy of the election with their income tax return for the taxable year the property was transferred.

“This prevented taxpayers making 83(b) elections from filing their tax returns electronically because there was no method available for also filing the 83(b) elections electronically,” Crescent Moran Chasteen, of counsel in the Tax Department at Nutter McClennen & Fish LLP, wrote in an article for Lexology.com.

On July 17, 2015, the US Treasury Department and the IRS published a notice of proposed rulemaking eliminating the requirement that a copy of a Section 83(b) election be submitted with the return. After receiving no comments on the proposal, those regulations now become final without modification.

Moran Chasteen says the final regulations simplify the Section 83(b) election process, allowing taxpayers making Section 83(b) elections to e-file their tax returns.

The final regulations apply to property transferred on or after Jan. 1, 2016. For transfers of property on or after Jan. 1, 2015, and prior to Jan. 1, 2016, the preamble to the proposed regulations provides that taxpayers may rely on the guidance in the proposed regulations (which is identical to the guidance contained in the final regulations).

The IRS reminded taxpayers that “a copy of any Section 83(b) election made with respect to property must be kept until the period of limitations expires for any return with respect to which the income inclusion or basis of the property is relevant.”

About Jason Bramwell

Jason Bramwell

Jason Bramwell is a staff writer and editor for AccountingWEB. He has nearly 20 years of experience in print and online media as a journalist and editor.

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