We have assisted many clients earning share awards as employee compensation for the services performed. These awards may have vesting conditions on grant date.
As an overly simplified explanation, grant date is when an employee receives property such as a share award from the company. The vesting date is when an employee has received the right to exercise ownership over property previously granted. This shall vary from employer to employer and their compensation plans.
In this article we will briefly talk about IRC § 83 (b) election related to the property transferred in connection with the performance of services.
- What is IRC 83 (b) election?
As defined by Reg. § 1.83-2, taxpayer making such an election, request IRS to include the excess of the fair market value of property at the time of transfer over the amount paid for such property, as compensation for services as ordinary income and levy taxes when share awards or stock options are granted rather than when vested.
- When to make IRC 83 (b) election?
The election can be made within 30 days after the date of property transferred (i.e. the grant date of share awards or stock options awarded as compensation for services).
- What to consider when making IRC 83 (b) election?
IRC § 83 (b) election is irrevocable unless with the consent of the Commissioner under Reg. § 1.83-2(f). In addition, there are many more caveats such as the valuation of award or the risk of forfeiture which needs to be considered. There are potentially substantial risks as well as potentially substantial tax savings for making the IRC § 83 (b) election so please consult your own tax adviser before taking action.
Disclaimer: This information has been prepared for informational purposes only, and is not
intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors or consult us regarding your own personal tax situation as this article was intended to be general in nature.