IRS Proposes to Eliminate Requirement that a Copy of a Section 83(b) Election Be Filed with the Annual Tax Return: In Order to Eliminate Obstacles to E-Filing of Tax Returns, the Section 83(b) Election Would No Longer Be Included with the Annual Tax Return

Sullivan & Cromwell LLP - July 20, 2015

On July 17, 2015, the IRS proposed regulations (the “Proposed Regulations”) that would eliminate the requirement that a copy of an election under Section 83(b)[i] be filed with the taxpayer’s annual tax return for the year in which election is made.  In the preamble to the Proposed Regulations, the IRS expressed concern that the requirement to include a copy of the Section 83(b) Election with the annual tax return prevents taxpayers from electronically filing their annual tax returns because commercial tax return services do not consistently provide a mechanism for submitting the election with an electronically filed tax return.  In order to remove this obstacle to electronic filing, the Proposed Regulations eliminate the requirement that a copy of the Section 83(b) Election be included with the annual tax return.  The Proposed Regulations would not change the requirement to file the election with the IRS within 30 days after a transfer of unvested property or the requirement to provide a copy of the election to the employer.

The Proposed Regulations would apply as of January 1, 2016, and would apply to property transferred on or after that date.  Taxpayers may rely on the Proposed Regulations for property transferred on or after January 1, 2015.