The IRS released new Form 15620 to simplify and standardize elections under section 83(b) on November 7, 2024.
This new form makes the process more accessible for taxpayers who previously had to send a letter to the IRS in accordance with Rev. Proc. 2012-29. While this new form does not change any of the requirements from Rev. Proc. 2012-29, it incorporates and standardizes the information required by it.
Overview of Section 83(b)
When a business transfers property to an employee or independent contractor as compensation for services (e.g., stock grant, stock option, partnership profits interest, restricted stock award, etc.), the recipient must include in gross income the excess of the property’s fair market value over any amount paid for it. The recipient must include this amount in income in the year the property is transferable or no longer subject to a substantial risk of forfeiture. Recipients can elect under section 83(b) to include the fair market value of the property in income at the time of transfer, rather than waiting for the restrictions to lapse, so that future appreciation is subject to capital gains taxation at preferential tax rates (max 20%) rather than regular income taxation at ordinary rates (max 37%). The 83(b) election is usually a good choice for employees to reduce their tax liability, but it can be disadvantageous if they ultimately do not vest in the property, which can occur, for example, upon a voluntary or involuntary separation from employment.
Filing Requirements
A section 83(b) election must be filed no later than 30 days after the date the property was transferred. There is no extension of time available to make the election, even with the new form. To make the election, employees need to complete and sign Form 15620 and mail it to the IRS office where they file their federal income tax returns. While the IRS currently accepts electronic signatures on the new form, it must still be mailed to the IRS, though electronic filing is expected in the future.
The new form is helpful because it shows clearly the information that is required to make the election, and it should help prevent errors or omissions that can cause unexpected tax headaches. The new form will be even better if and when the IRS allows it to be filed electronically instead of through the mail.
If you have questions about the new section 83(b) election form, please reach out to your Withum tax advisor.
Contact Us
For more information on this topic, please contact a member of Withum’s Business Tax Services Team.
