Section 83(b) election remains valid despite a missing tax-return copy

Plain-English summary

The IRS ruled that a taxpayer's § 83(b) election for restricted stock remained valid even though a copy was not attached to the taxpayer's income tax return. The taxpayer had timely mailed the election to the IRS, provided a copy to the employer, and otherwise satisfied the statement requirements. The missing tax-return copy did not invalidate the election, although the IRS asked the taxpayer to forward a copy to be associated with the return.

Ruling snapshot

• Question: Does failing to attach a copy of a timely filed § 83(b) election to the income tax return invalidate the election?
• Outcome: Approved.
• Key authorities: IRC §§ 83(a), 83(b); Treas. Reg. § 1.83-2.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201405008 Third Party Communication: None
Release Date: 1/31/2014 Date of Communication: Not Applicable
Index Number: 83.02-03
Person To Contact:
------------------------- -----------------------
Telephone Number:
---------------------------- ----------------------
-------------------------------- Refer Reply To:
CC:TEGE:EB:EC
PLR-122742-13
Date: October 22, 2013

LEGEND:

Company X = -----------------------------------------

Date 1 = ----------------------------------

Date 2 = ----------------------------------

Year 1 = --------------

Dear ----------------:

This is in response to a request for a private letter ruling, dated May 13, 2013, submitted
on your behalf by your authorized representative, requesting a ruling under section
83(b) of the Internal Revenue Code (Code). Specifically, you request an extension of
time to file with your Year 1 tax return a copy of an election made pursuant to section
83(b) of the Code. The facts, as represented, are as follows.

On Date 1, you purchased restricted shares of Company X common stock, subject to
the terms of a Confidential Offering Memorandum (memorandum). At the time of the
purchase, you were employed by Company X. The memorandum required you to make
an election pursuant to section 83(b) of the Code.

Your tax preparer assisted you with filing the election. On Date 2, you timely filed the
election by mailing a statement to the Internal Revenue office with which you file your
tax returns. The statement met the content requirements of section 1.83-2(e) of the
Income Tax Regulations (Regulations). You provided a copy of the statement to
Company X. In preparing your tax return for Year 1, your tax preparer failed to attach a
copy of the election to the tax return. As a result, a copy of the statement was not

PLR-122742-13 2

submitted with your Year 1 tax return. Your Year 1 and subsequent tax returns have
been filed in a manner consistent with making a valid election.

Section 83 of the Code provides rules for the taxation of property transferred to an
individual in connection with the performance of services. Section 83(a) of the Code
provides that if, in connection with the performance of services, property is transferred to
any person other than the person for whom such services are performed, the fair market
value of the property (less the amount paid for the property) shall be included in the gross
income of the recipient in the first taxable year in which the recipient's interest in the
property is not subject to a substantial risk of forfeiture.

Section 83(b)(1) of the Code provides that any person who performs services in
connection with which property is transferred may elect to include in gross income for the
taxable year of the transfer the excess of the fair market value of the property over the
amount paid for it. Section 83(b)(2) of the Code provides that an election made
pursuant to section 83(b)(1) shall be made in the manner prescribed by the Secretary
and shall be made not later than 30 days after the date of the transfer.

Section 1.83-2(c) of the Regulations provides that a section 83(b) election is made by
filing one copy of a written statement with the Internal Revenue office with whom the
taxpayer files his return. In addition, one copy of such statement shall be submitted with
the income tax return for the year of transfer.

Section 1.83-2(d) of the Regulations provides that the person who performed the
services shall also submit a copy of the statement to the person for whom the services are
performed.

Section 1.83-2(e) of the Regulations provides that the statement shall be signed by the
person making the election and shall indicate that it is being made under section 83(b)
of the Code, and shall contain the following information: the name, address and
taxpayer identification number of the taxpayer; a description of each property with
respect to which the election is being made; the date or dates on which the property is
transferred and the taxable year for which such election was made; the nature of the
restriction or restrictions to which the property is subject; the fair market value at the
time of transfer of each property with respect to which the election is being made; the
amount (if any) paid for such property; and, with respect to elections made after July 21,
1978, a statement to the effect that copies have been furnished to other persons as
provided in section 1.83-2(d) of the Regulations.

Based on the representations made and after consideration of the provisions of sections
83(b) of the Code and 1.83-2 of the Regulations we have determined that you fulfilled
the requirements for a valid election under section 83(b) when your statement was
mailed to the Internal Revenue office on Date 2. Failure to submit a copy of the
statement with your Year 1 tax return did not affect the validity of the election. We

PLR-122742-13 3

therefore conclude that, to the extent that your purchase of Company X stock on Date 1,
constituted a transfer of property under section 83 of the Code, your election under
section 83(b) with respect to that stock remains in effect.

We ask that you now forward a copy of the statement to the Internal Revenue office with
which you file your tax returns to be associated with your Year 1 tax return.

Except as expressly provided herein, no opinion is expressed or implied as to the
federal tax consequences of the facts described above under any other provision of the
Code.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

A copy of this letter must be attached to any income tax return to which it is relevant.

This ruling is based on the information and representations submitted by your
authorized representative and accompanied by a penalty of perjury statement executed
by you. While this office has not verified any of the material submitted in support of the
request for rulings, it is subject to verification on examination.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

                                       Sincerely,


                                       Catherine L. Fernandez
                                       Branch Chief,
                                       Executive Compensation Branch
                                       Office of Division Counsel / Associate Chief
                                       Counsel / Tax Exempt & Government Entities

Enclosures:
Copy of letter
Copy for section 6110 purposes