IRS Eliminates Requirement to Submit Copy of Section 83(b) Election With Returns

(Parker Tax Publishing August 2016)

The IRS has issued final regulations eliminating the requirement to file a copy of Code Sec. 83(b) elections (to include in gross income the value of property received in connection with services performed) with returns. The final regulations apply to property transferred on or after January 1, 2016. T.D. 9779 (7/26/16).

Code Sec. 83 addresses the tax consequences of a transfer of property in connection with the performance of services. Under Code Sec. 83(b) a taxpayer may elect to include in gross income, for the tax year in which the property is transferred, the excess of the fair market value of the property at the time of transfer over the amount paid for the property. The taxpayer may make this election even if he or she paid full value for the property at the time of the transfer, and thus realized no bargain element in the transaction.

Under Reg. Sec. 1.83-2(c), the Code Sec. 83(b) election is made by filing a written statement with the IRS office where the service provider files a return. Prior to the amendments made in T.D. 9779, the taxpayer was also required to submit a copy of the statement with his or her income tax return for the tax year in which the property was transferred.

In proposed regulations issued in July 2015, the IRS noted that in recent years many taxpayers who wish to electronically file (e-file) their annual income tax return have been unable to do so because of the requirement in Reg. Sec. 1.83-2(c) that a copy of the Code Sec. 83(b) election be submitted with the taxpayer's income tax return. As commercial software available for e-filing income tax returns does not consistently provide a mechanism for submitting a Code Sec. 83(b) election with an individual's e-filed return, an individual who has made such an election would be unable to e-file his or her income tax return in compliance with the regulation and would have to paper file his or her return to comply.

In order to remove this obstacle to e-filing an individual tax return, the final regulations eliminate the requirement under Reg. Sec. 1.83-2(c) that a copy of the Code Sec. 83(b) election be submitted with an individual's tax return for the year the property is transferred.

Taxpayers are still required under Code Sec. 83(b)(2) to file a Code Sec. 83(b) election with the IRS no later than 30 days after the date that the property is transferred to him or her, which will provide the IRS with the original election.

Practice Tip: Although taxpayers no longer need to file a copy of their Code Sec. 83(b) election with their returns, they should still keep any such elections on record until the period of limitations expires for the return that reports the sale or other disposition of the property.

The final regulations apply to property transferred on or after January 1, 2016. Taxpayers may rely on the proposed regulations (which contained guidance identical to that in the final regs) for property transferred on or after January 1, 2015.

For a discussion of Code Sec. 83(b) elections, see Parker Tax ¶ 124,525.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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