In October, the Internal Revenue Service (IRS) introduced IRS Form 15620, Section 83(b) Election. For the first time, the IRS published a standardized IRS tax form specifically designed to streamline elections under Internal Revenue Code section 83(b) (Section 83(b) Election).

Background on Section 83(b) Elections

Internal Revenue Code section 83(a) provides that if property is transferred to a person in connection with the performance of services, the fair market value of the property less the amount (if any) paid for such property is included in the taxpayer’s gross income when the property is no longer subject to a substantial risk of forfeiture (i.e., becomes transferable or vests).

Under the appropriate circumstances, a taxpayer may elect to recognize income on the value of substantially nonvested property when granted, rather than upon vesting. This is called a Section 83(b) Election and allows taxpayers, including founders, executives, or individuals providing services to a company to accelerate the time at which they must include the value of nonvested property in income. Common types of equity awards for which taxpayers often file Section 83(b) Elections include restricted stock, early-exercised nonstatutory stock options, and profits interests.

Through a Section 83(b) Election, a taxpayer may eliminate or minimize ordinary income tax liability by paying ordinary income tax on the difference between the fair market value of the property on the grant date and the purchase price, if any. By filing a timely election, the taxpayer commences her holding period and may be subject to tax at capital gains rates, which are more favorable than ordinary income tax rates, after the taxpayer’s right to the property vests and the taxpayer disposes of it.

Features of IRS Form 15620

1. Standardized Filing: Form 15620 provides a uniform format for filing Section 83(b) Elections, offering an alternative to submitting a written statement using sample election language provided in Revenue Procedure 2012-29 or another statement containing the information provided under Treasury Regulation section 1.83-2(e).
2. Mail Filing: While the IRS still requires that the Form 15620 be filed via mail with the IRS office with which the person who performed the services files her federal income tax return, the IRS is expected to support electronic filing eventually. The Form 15620 does not extend the 30 day deadline to file a Section 83(b) Election after the property transfer date.¹
3. Detailed Instructions: Form 15620 provides clear guidance on required information, including: taxpayer identification; description of the property; date of transfer; fair market value of the property at the time of transfer; amount (if any) paid for the property.

Implications

The introduction of Form 15620 offers greater clarity and convenience for taxpayers and practitioners filing Section 83(b) Elections. The new optional Form 15620 is available to taxpayers for immediate use, but is not mandatory. So, a taxpayer with unusually structured award grants may choose to prepare her own Section 83(b) Election statement modifying the Form 15620 to align with her particular circumstances.

Taxpayers and tax advisors should familiarize themselves with Form 15620 to ensure timely compliance for any upcoming Section 83(b) Elections.

For taxpayers looking to benefit from Section 83(b) Elections with respect to their qualified small business stock (QSBS) under IRC section 1202, review this alert highlighting the importance of Section 83(b) Elections.

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¹ As noted in the Form 15620 instructions, in accordance with IRC section 7503, if the thirtieth day following the transfer of property falls on a Saturday, Sunday or legal holiday, the Section 83(b) Election will be considered timely filed if it is postmarked by the next succeeding day which is not a Saturday, Sunday or legal holiday.