June 27, 2012 1:49 pm

Section 83(b) Election for Restricted Stock Made Easier

If you receive stock from your employer in connection with the performance of services and such stock is not vested or subject to risk of forfeiture, you can make a special election. This election, called a Section 83(b) election (named after the section in the Tax Code), allows you to include in gross income the value of the stock (less any amount you paid) as compensation. Why choose to pay tax now when you don’t have to? This election transforms all future appreciation on the stock into capital gains; without the election, the full value of the stock would be ordinary income in the future when there was no longer any risk of forfeiture.

The IRS has now released sample language that can be used to make this election. The election must be filed with the IRS within 30 days of receipt of the restricted stock as well as attaching it to the return for the year in which the election is made.

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Tax Glossary

Private letter ruling

A written determination issued to a taxpayer by the IRS that interprets and applies the tax laws to the taxpayer’s specific set of facts. A letter ruling advises the taxpayer regarding the tax treatment that can be expected from the IRS in the circumstances specified by the ruling. It may not be used or cited as precedent by another taxpayer.

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