IRS Issues Proposed Regulations Under Internal Revenue Code Section 83 Regarding Substantial Risk Of Forfeiture Analysis

On May 29, 2012, the Internal Revenue Service issued proposed regulations relating to property transferred in connection with the performance of services under Internal Revenue Code Section 83 (the "Proposed Regulations"). According to the Proposed Regulations, they are not intended to change existing law but, rather, they are intended to clarify the existing Section 83 regulations and resolve some uncertainty and confusion in defining whether a "substantial risk of forfeiture" exists.

As described in more detail below, the Proposed Regulations clarify that:

• a substantial risk of forfeiture may only be established through a service condition or a condition related to the purpose of the transfer, and not otherwise;