Timely revocation of section 83(b) election approved

Plain-English summary

A service provider received restricted class A units subject to a risk of forfeiture and filed an election under section 83(b). The taxpayer then asked the IRS for permission to revoke the election less than 30 days after the property transfer. Section 83 and its regulations generally require the Commissioner's consent to revoke an election, and the regulations ordinarily limit revocation to a mistake of fact. The IRS also recognizes that an election may generally be revoked on or before its original due date. Because the request was filed within the same 30-day period allowed for making the election, the IRS consented to the revocation.

Ruling snapshot

• Question: Could the taxpayer revoke a section 83(b) election within the original 30-day election period?
• Outcome: approved
• Key authorities: IRC § 83; Treas. Reg. § 1.83-2; Rev. Proc. 2006-31

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224
Index Number: 83.02-04
                                                             Third Party Communication: None
                                                             Date of Communication: Not Applicable
Number: 202403012                                            Person To Contact:
Release Date: 1/19/2024                                      ---------------------------
--------------------------------                             Telephone Number:
----------------------------------                           --------------------
------------------------------                               Refer Reply To:
                                                             CC:EEE:EB:EC
                                                             PLR-114770-23
                                                             Date: October 19, 2023




Legend
Date 1         = -------------------
X              = -----------
Company        = -------------------------------------------------------------------------------------------------
Employer       = -------------------------------------------------------------------------------------------------
                 -----------
Date 2         = ----------------

Dear ------------------------

       This letter is in response to your request for a letter ruling, dated    , in
which you asked for consent to revoke an election you made under § 83(b) of the
Internal Revenue Code (Code). The facts, as represented, are as follows.

       On Date 1, Company granted you X of its restricted class A units in connection
with the performance of services for your Employer, subject to a risk of forfeiture. On
Date 2, you filed an election under § 83(b) of the Code with the Internal Revenue
Service Center where you file your individual tax return. The § 83(b) election
referenced all X restricted class A units transferred on Date 1. On ------------------, less
than 30 days after Date 1, you sent a letter to this office requesting consent to revoke
your § 83(b) election.

       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
any) paid for the property, as compensation for services. Under § 83(b)(2) of the Code,

PLR-114770-23                                2

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

         The rulings contained in this letter are based upon information and
representations submitted by you and accompanied by a penalty of perjury statement
executed by you. 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. 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. 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 any income tax return to which
it is relevant.

                                                 Sincerely,



                                                 ILYA E. ENKISHEV
                                                 Senior Counsel
                                                 Executive Compensation Branch
                                                 Office of the Associate Chief Counsel
                                                  (Employee Benefits, Exempt
                                                 Organizations and Employment Taxes)

PLR-114770-23   3


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