Frequently Asked Questions
Who is eligible for the Section 83(b) Election?
Must be made within 30 days of the transfer of property (such as restricted stock) that is subject to a substantial risk of forfeiture.
How does the Section 83(b) Election work?
Allows a service provider to include the fair market value of restricted property in gross income at the time of transfer rather than waiting for the property to vest.
What law authorizes the Section 83(b) Election?
The Section 83(b) Election is authorized under IRC §83(b) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §83
Source: Internal Revenue Code, Title 26, United States Code
§ 83. Property transferred in connection with performance of services(a) General ruleIf, in connection with the performance of services, property is transferred to any person other than the person for whom such services are performed, the excess of—(1) the fair market value of such property (determined without regard to any restriction other than a restriction which by its terms will never lapse) at the first time the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, over
(2) the amount (if any) paid for such property,
shall be included in the gross income of the person who performed such services in the first taxable year in which the rights of the person having the beneficial interest in such property are transferable or are not subject to a substantial risk of forfeiture, whichever is applicable. The preceding sentence shall not apply if such person sells or otherwise disposes of such property in an arm’s length transaction before his rights in such property become transferable or not subject to a substantial risk of forfeiture.
(b) Election to include in gross income in year of transfer(1) In generalAny person who performs services in connection with which property is transferred to any person may elect to include in his gross income for the taxable year in which such property is transferred, the excess of—(A) the fair market value of such property at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse), over
(B) the amount (if any) paid for such property.
If such election is made, subsection (a) shall not apply with respect to the transfer of such property, and if such property is subsequently forfeited, no deduction shall be allowed in respect of such forfeiture.
(2) ElectionAn election under paragraph (1) with respect to any transfer of property shall be made in such manner as the Secretary prescribes and shall be made not later than 30 days after the date of such transfer. Such election may not be revoked except with the consent of the Secretary.
(c) Special rulesFor purposes of this section—(1) Substantial risk of forfeitureThe rights of a person in property are subject to a substantial risk of forfeiture if such person’s rights to full enjoyment of such property are conditioned upon the future performance of substantial services by any individual.
(2) Transferability of propertyThe rights of a person in property are transferable only if the rights in such property of any transferee are not subject to a substantial risk of forfeiture.
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