The IRS released proposed regulations (REG-135524-14) that would eliminate the requirement for individuals to attach Section 83(b) elections to their individual income tax returns for the year the election is made.
Section 83(b) allows a service provider to make an election to include the fair market value of property transferred in connection with the performance of services, less the amount paid for the property (if any), in income on the date the property is transferred (for example, the grant date) even though the property is subject to a substantial risk of forfeiture. To make a valid Section 83(b) election under the current regulations, the service provider must file an election statement with the IRS within 30 days after the date the property is transferred to him or her, 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.
According to the IRS, many taxpayers couldn't efile their individual income tax returns because of the requirement to attach the Section 83(b) election to the return. These proposed regulations would eliminate the requirement to attach a copy of the election to the service provider's federal income tax return for the year the election is made, and enable these taxpayers to efile their tax returns. If finalized, these regulations would apply to property transferred on or after Jan. 1, 2016. However, taxpayers may rely on these proposed regulations for property transferred on or after Jan. 1, 2015.
The IRS has been lenient with taxpayers who have previously failed to attach a Section 83(b) election to their federal tax returns in accordance with the current regulations. For example, in a recently released private letter ruling (PLR 201528001), the IRS ruled that a taxpayer's Section 83(b) election was valid even though the taxpayer failed to attach a copy of the Section 83(b) election to his tax return for the year in which the election was made.
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