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No More 83(b) Attachments to Tax Returns

The IRS issued proposed regulations which eliminate the requirement that taxpayers must submit a copy of a Code Sec. 83(b) election with their tax returns.

The proposed regulations, if finalized, will apply as of January 1, 2016; however, taxpayers may rely on them for property transferred on or after January 1, 2015.

Under an 83(b) election, a taxpayer can choose to report income in the year he receives property (for example, on the grant date) in connection with the performance of services, even though the property is subject to substantial risk of forfeiture.

The 83(b) election must be filed within 30 days of the date of the property transfer. The election is filed at the IRS office with which the taxpayer files his tax return.

In the past, in addition to making the election, a copy of the election had to be attached to the taxpayer’s tax return when filed with the IRS. Many taxpayers could not e-file their tax returns since a copy of the election was attached.

The proposed regs eliminate the requirement that taxpayers must submit a copy of a Code Sec. 83(b) election with their tax return for the year in which the property subject to the election was transferred. (Prop Reg § 1.83-2(c))

Per the IRS, taxpayers’ Code Sec. 83(b) elections are scanned by the IRS Service Center receiving the election, and an electronic copy of the election is generated. The creation of this electronic copy of the Code Sec. 83(b) election eliminates the need for a taxpayer to submit a copy of the election with his individual tax return.

However, the IRS also reminds taxpayers that they must maintain sufficient records to show their tax basis of property.

So be sure to keep a copy of the 83(b) election in your records. Just in case.

By Melinda Nelson, CPA