IRS Issues Final Regulations On Property Transferred For Services Under Section 83

The Treasury Department (Treasury) and Internal Revenue Service (IRS) have issued final regulations clarifying the forfeiture provisions under Section 83 of the Internal Revenue Code of 1986, as amended, for transactions occurring after January 1, 2013.  The regulations were issued on February 25, 2014.  Section 83 provides that property transferred to an employee as compensation (such as the issuance of employer stock or property other than cash) is not taxable until the property is no longer subject to a substantial risk of forfeiture or until the property is freely transferable, whichever is earlier. The regulations are consistent with prior guidance, but offer several clarifications on what constitutes a "substantial risk of forfeiture." Employers who did not evaluate the impact of the regulations when they were originally proposed in 2012 will need to consider how the final regulations affect existing arrangements.