On Tuesday, the IRS released a ruling under Sec. 83(b), the election to include property received in connection with the performance of services in income in the year the property is received even if there is a substantial risk that the property will later be forfeited (Rev. Rul. 2012-29). The ruling contains sample language for making the Sec. 83(b) election and examples of the amount of income taxpayers would recognize if they made the election.
Although the revenue ruling provides sample text to make the election under Sec. 83(b), the sample text need not be used if the taxpayer files a written statement that includes the information required under Regs. Sec. 1.83-2(e). The election statement must be filed no later than 30 days after the date the property was transferred to the taxpayer (or the next business day if 30 days falls on a Saturday, Sunday, or holiday). The statement is filed with the IRS office where the taxpayer making the election files his or her return and the taxpayer must also submit a copy of the election with his or her tax return for the year the property was transferred and a copy to the person for whom the taxpayer performed the services for which the property was transferred.
When a taxpayer makes a Sec. 83(b) election, he or she is electing to include in gross income as compensation the excess, if any, of the fair market value of the property at the time of the transfer (determined without regard to any lapse restriction) over the amount, if any, paid for the property. The ruling contains six examples illustrating how these rules apply, both when the election has been made and when it has not.
Sally P. Schreiber (firstname.lastname@example.org) is a
JofA senior editor.