Since 1986, the IRS has offered electronic filing of tax returns in order to reduce operating costs and paper usage. However, not all items can be filed electronically, including the Section 83(b) election statement. The IRS is proposing to change its rules so that the Section 83(b) election statement no longer needs to be filed with the federal tax return.
This proposed change only relates to the paper filing of Section 83(b) elections with a recipient’s tax return. Recipients will still be required to file an initial Section 83(b) election statement in paper to the IRS within 30 days of the grant date.
Section 83(b)(1) of the IRS code provides that a person can elect to have income recognized from a restricted stock award at the time of grant as opposed to at the time of vesting. If an equity recipient makes this election, he or she will pay income tax on the fair market value (FMV) of the award at the date of grant as opposed to the FMV at the time of vesting.
Under section 83(b)(2), this election must be made within 30 days of the transfer date of the property. In the case of a restricted stock award, the transfer date is the grant date.
And under section 1.83-2(c), a statement of this election must be filed with the IRS on paper within the 30-day window. A second copy of the statement must also be filed with the recipient’s tax return.
The problem is that it is not possible to file a Section 83(b) election statement electronically. Since many U.S. taxpayers elect to file federal tax returns electronically, this poses a problem. And since the IRS has stated its preference for electronic filing over paper filing, this practice is in direct opposition to the IRS’ own mandate.
Therefore, the IRS has proposed a new regulation that would eliminate the need to file the 83(b) election statement with the federal tax return. If approved, the regulation will go into effect as of Jan. 1, 2016 and would be applicable to any property transferred on or after that date. Taxpayers will be able to rely on this proposal for restricted stock with a grant date on or after Jan. 1, 2015.
As usual with any tax documents, the IRS reminds the taxpayer that even if the need to file a paper copy is eliminated, it is the responsibility of the taxpayer to maintain copies of all their records. As such the taxpayer should keep a copy of the 83(b) election until the expiration of the period of limitations for the tax return affected by the 83(b) election.
All comments to this proposal will be available at www.regulations.gov or upon request.
For more information on this subject, read the full proposed regulation change from the IRS.