The IRS has provided sample language (Rev. Proc. 2012-29) that
may be used (but is not required to be used) for making an election
under Section 83(b).
Section 83 provides rules on the recognition of income when
property (e.g., stock) is transferred to a service provider in
connection with the performance of services. In general, Section 83
provides that the service provider recognizes income in the first
taxable year that the property has been transferred to the service
provider and the property is either transferrable or not subject to
a substantial risk of forfeiture (i.e., the property is vested).
For example, if an employee receives nonvested stock from an
employer, the employee recognizes compensation income in the first
year that the stock becomes vested, and the amount of income is
equal to the fair market value of that stock on the vesting date,
less the amount the employee paid, if any, for the stock.
Section 83(b) allows the service provider to make an election to
include the fair market value of the property, less the amount paid
for the property (if any), in income on the date the property is
transferred (e.g., the grant date) even though the property is
subject to a substantial risk of forfeiture. When the property
subsequently vests, the service provider does not recognize
compensation income.
To make a valid Section 83(b) election, the service provider
must file an election statement with the IRS within 30 days after
the date the property was transferred, provide a copy of the
election to the employer that transferred the property and attach a
copy of the election to the service provider's federal income
tax return for the year the election is made. Rev. Proc. 2012-29
provides a sample election statement, which, if properly completed
and filed with the appropriate people, will satisfy the
requirements of Section 83(b) and the regulations thereunder.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Specific Questions relating to this article should be addressed directly to the author.
When Congress resolved the fiscal cliff crisis early this year, it brought permanence to estate, gift and generation-skipping transfer tax laws that had been in flux for over a decade.
Organizations exempt from income tax under Section 501(c)(3) of the Internal Revenue Code (the "Code") are permitted to carry on activities that are unrelated to their exempt purpose. When these unrelated activities generate revenue for the organization.
The IRS has confirmed in emailed advice that a partnership whose partners continued the old partnership’s business through a new entity under local law continued as the same partnership for U.S. federal income tax purposes.
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