Taxpayer could revoke timely section 83(b) elections

Plain-English summary

An employee exercised compensatory stock options and received employer shares subject to a substantial risk of forfeiture. The employee timely filed section 83(b) elections, then asked to revoke them less than 30 days after receiving the shares. The IRS explained that a section 83(b) election generally cannot be revoked without consent, but consent is generally granted when the request arrives by the original election deadline. Because the revocation request was made within that 30-day period, the IRS granted consent to revoke the elections. The ruling did not address other tax consequences of section 83.

Ruling snapshot

• Question: Could the taxpayer revoke section 83(b) elections before the 30-day deadline for making those elections expired?
• Outcome: Approved.
• Key authorities: IRC § 83; Treas. Reg. §§ 1.83-2(a) and 1.83-2(f); Rev. Proc. 2006-31.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201644016 Third Party Communication: None
Release Date: 10/28/2016 Date of Communication: Not Applicable
Index Number: 83.02-04
Person To Contact:
------------------------ ---------------------------
------------------------------- Telephone Number:
------------------------------ ----------------------
Refer Reply To:
CC:TEGE:EB:EC
PLR-109839-16
Date:
June 20, 2016

Legend

Date 1 = ------------------------
x = ----------
Employer = ----------------------------
Date 2 = ------------------------

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

  This letter is in response to your request, dated February 2, 2016, in which you

asked for consent to revoke elections you made under § 83(b) of the Internal Revenue
Code (Code). The facts, as represented, are as follows.

   On Date 1, you exercised compensatory stock options granted to you by

Employer, and received in exchange x shares of Employer common stock, subject to a
substantial risk of forfeiture. On Date 2, you filed elections under § 83(b) of the Code
with the Internal Revenue Service Center where you file your individual tax return. The
§ 83(b) elections referenced x shares of common stock received from Employer on Date

1. On February 8, 2016, less than 30 days after Date 1, you sent a letter to this office
   requesting consent to revoke your § 83(b) elections.

   Section 83 of the Code sets forth the rules for transfers of property in connection
   with the performance of services. Section 83(a) provides that the excess of the fair
   market value of the property transferred, at the time the property becomes substantially
   vested, over the amount (if any) paid for the property, shall be included as
   compensation in the service provider's gross income for the taxable year in which the
   property becomes substantially vested. Property is substantially vested when it is either
   transferable or no longer subject to a substantial risk of forfeiture.

   Section 83(b) of the Code and § 1.83-2(a) of the Income Tax Regulations
   

   (Regulations) permit the service provider to elect to include in gross income the excess
   (if any) of the fair market value of the property at the time of transfer over the amount (if
   PLR-109839-16 2

any) paid for the property, as compensation for services. Under § 83(b)(2) of the Code,
an election made under § 83(b) must be made in accordance with the regulations
thereunder and must be filed with the Internal Revenue Service no later than 30 days
after the date that the property is transferred to the service provider.

   Section 83 of the Code and § 1.83-2(f) of the Regulations provide that an election

under § 83(b) may not be revoked without the consent of the Commissioner. Section
1.83-2(f) provides that consent to revoke an election under § 83(b) will be granted only
in a case where the transferee is under a mistake of fact as to the underlying
transaction and must be requested within 60 days of the date on which the mistake first
became known to the person who made the election. The Service has recognized the
principle that an election made under the Code or Regulations may be revoked on or
before the due date for making the election. Section 2.08 of Rev. Proc. 2006-31, 2006-
2 C.B. 32, provides that a request for consent to revoke a § 83(b) election will generally
be granted if the request is filed on or before the due date for making that § 83(b)
election.

   In the instant case, you filed your request to revoke your § 83(b) elections within

the 30 day time period allowed under § 83(b) for making the elections. Based solely on
the representations provided and the information and documents submitted, consent to
revoke your § 83(b) elections is granted.

    The rulings contained in this letter are based upon information and

representations submitted by the taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party, as specified in Rev. Proc. 2016-1, 2016-1
I.R.B. 1, § 7.01(15)(b). This office has not verified any of the material submitted in
support of the request for ruling, and such material is subject to verification on
examination. The Associate office will revoke or modify a letter ruling and apply the
revocation retroactively if there has been a misstatement or omission of controlling
facts; the facts at the time of the transaction are materially different from the controlling
facts on which the ruling was based; or, in the case of a transaction involving a
continuing action or series of actions, the controlling facts change during the course of
the transaction. See Rev. Proc. 2016-1, § 11.05.

   Except as specifically ruled above, no opinion is expressed as to the federal tax

consequences of the transaction described above under any other provision of the
Code. Specifically, no opinion is expressed concerning other tax consequences of § 83
and its applicability to the transaction described above.
PLR-109839-16 3

   This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)

of the Code provides that it may not be used or cited as precedent. A copy of this letter
should be attached to your income tax return for -------.

                                            Sincerely,




                                            CATE LIVINGSTON FERNANDEZ
                                            Chief, Executive Compensation Branch
                                            Office of the Associate Chief Counsel
                                            (Tax Exempt and Government Entities)

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