The IRS has provided sample language (Rev. Proc. 2012-29) that may be used (but is not required to be used) for making an election under Section 83(b).
Section 83 provides rules on the recognition of income when property (e.g., stock) is transferred to a service provider in connection with the performance of services. In general, Section 83 provides that the service provider recognizes income in the first taxable year that the property has been transferred to the service provider and the property is either transferrable or not subject to a substantial risk of forfeiture (i.e., the property is vested). For example, if an employee receives nonvested stock from an employer, the employee recognizes compensation income in the first year that the stock becomes vested, and the amount of income is equal to the fair market value of that stock on the vesting date, less the amount the employee paid, if any, for the stock.
Section 83(b) allows the service provider to make an election to include the fair market value of the property, less the amount paid for the property (if any), in income on the date the property is transferred (e.g., the grant date) even though the property is subject to a substantial risk of forfeiture. When the property subsequently vests, the service provider does not recognize compensation income.
To make a valid Section 83(b) election, the service provider must file an election statement with the IRS within 30 days after the date the property was transferred, 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. Rev. Proc. 2012-29 provides a sample election statement, which, if properly completed and filed with the appropriate people, will satisfy the requirements of Section 83(b) and the regulations thereunder.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
