On November 7, 2024, the IRS released Form 15620, a standardized form for taxpayers making elections under Section 83(b) of the Internal Revenue Code. Before the release, Section 83(b) elections were filed using self-drafted election statements meeting the requirements set forth in Treasury Regulations and based on sample language offered in guidance. The IRS has not indicated that use of Form 15620 is mandatory, so we expect that self-drafted election statements will continue to be acceptable, pending further guidance.
Form 15620 includes much of the same information practitioners have been including in self-drafted election statements but has less flexibility for explanation if the election is filed in unique circumstances. Self-drafted statements may still be advisable in certain contexts, such as when using separate “aggregator” vehicles for holders of profits interests or when the direct recipient of the interest is not the service provider (e.g., a trust owned or controlled by the service provider). Nevertheless, those preparing Section 83(b) elections should consider using Form 15620 to possibly simplify the filing process in many circumstances.
The Section 83(b) election (or Form 15620) still must be filed no later than 30 days after the date the property that is the subject of the Section 83(b) election was transferred and must be filed with the IRS office where the person who performed the services files his or her federal income tax return. The IRS will not accept Section 83(b) elections filed after the 30-day period, so taxpayers must take care to ensure timely filing. Elections sent via certified mail will be deemed filed as of the postmark date, and electronic signatures are also acceptable.
A Section 83(b) election is typically made when a taxpayer receives property that is subject to a “substantial risk of forfeiture” in connection with the performance of services. Without an election, the property would be included in taxable income as compensation when the property vests. The Section 83(b) election instead allows a taxpayer to include the receipt of the property in taxable income when received using the value of the property at that time. This generally results in the property being included in taxable income at a lower value, assuming the property appreciates after issuance. Subsequent appreciation can be eligible for capital gains rates upon disposition. Section 83(b) elections are common on receipt of restricted stock, and taxpayers often make “protective” Section 83(b) elections upon the issuance of partnership profits interests.
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If you have any questions, or would like additional information, please contact one of the attorneys on our Federal Tax Team.