80 FR 42439 - Property Transferred in Connection With the Performance of Services

DEPARTMENT OF THE TREASURY
Internal Revenue Service

Federal Register Volume 80, Issue 137 (July 17, 2015)

This document contains proposed regulations relating to property transferred in connection with the performance of services. These proposed regulations affect certain taxpayers who receive property transferred in connection with the performance of services and make an election to include the value of substantially nonvested property in income in the year of transfer.

[Federal Register Volume 80, Number 137 (Friday, July 17, 2015)]
[Proposed Rules]
[Pages 42439-42440]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-17530]



[[Page 42439]]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-135524-14]
RIN 1545-BM63


Property Transferred in Connection With the Performance of 
Services

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: This document contains proposed regulations relating to 
property transferred in connection with the performance of services. 
These proposed regulations affect certain taxpayers who receive 
property transferred in connection with the performance of services and 
make an election to include the value of substantially nonvested 
property in income in the year of transfer.

DATES: Comments must be received by October 15, 2015.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-135524-14), room 
5205, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
135524-14), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at http://www.regulations.gov/ (IRS REG-135524-14).

FOR FURTHER INFORMATION CONTACT: Concerning these proposed regulations, 
Thomas Scholz or Michael Hughes at (202) 317-5600 (not a toll-free 
number); concerning submissions of comments, and/or to request a 
hearing, Regina Johnson, at (202) 317-6901 (not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

    Section 83(a) of the Internal Revenue Code (Code) provides 
generally that if, in connection with the performance of services, 
property is transferred to any person other than the person for whom 
such services are performed, the excess of the fair market value of the 
property (determined without regard to any restriction other than a 
restriction which by its terms will never lapse) as of the first time 
that the transferee's rights in the property are transferable or are 
not subject to a substantial risk of forfeiture, whichever occurs 
earlier, over the amount (if any) paid for the property is included in 
the service provider's gross income for the taxable year which includes 
such time. Section 83(b) and Sec.  1.83-2(a) permit the service 
provider to elect to include in gross income, as compensation for 
services, 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.
    Under section 83(b)(2), an election made under section 83(b) must 
be made in accordance with the regulations thereunder and must be filed 
with the IRS no later than 30 days after the date on which the property 
is transferred to the service provider. Under Sec.  1.83-2(c), an 
election under section 83(b) is made by filing a copy of a written 
statement with the IRS office with which the person who performed the 
services files his or her return. In addition, the person who performed 
the services is required to submit a copy of such statement with his or 
her income tax return for the taxable year in which such property was 
transferred. Section 1.83-2(d) requires that the person who performed 
the services also submit a copy of the section 83(b) election to the 
person for whom the services were performed.
    In recent years, it has come to the attention of the IRS that many 
taxpayers who wish to electronically file (e-file) their annual income 
tax return have been unable to do so because of the requirement in 
Sec.  1.83-2(c) that they submit a copy of their section 83(b) election 
with their income tax return. Commercial software available for e-
filing income tax returns does not consistently provide a mechanism for 
submitting a section 83(b) election with an individual's e-filed 
return. As a result, an individual who has made a section 83(b) 
election may be unable to e-file his or her return and at the same time 
comply with the requirement in Sec.  1.83-2(c) that a copy of the 
section 83(b) election be submitted with the return. An individual who 
made a section 83(b) election would be required to paper file his or 
her income tax return to comply with the requirements under Sec.  1.83-
2(c).
    Since the introduction of the e-file program, the IRS has 
encouraged taxpayers to file returns electronically. The e-file program 
reduces the amount of paper the government must process, and this 
reduction of paper processing allows the IRS to be more efficient and 
use valuable resources to address other critical work.
    In order to remove this obstacle to e-filing an individual tax 
return, the proposed regulations would eliminate the requirement under 
Sec.  1.83-2(c) that a copy of the section 83(b) election be submitted 
with an individual's tax return for the year the property is 
transferred. As described in this preamble, section 83(b)(2) requires 
that an election made under section 83(b) be filed with the IRS no 
later than 30 days after the date that the property is transferred to 
the service provider. This statutory requirement provides the IRS with 
the original section 83(b) election. Section 83(b) elections are 
scanned by the service center receiving the election, and an electronic 
copy of the election is generated. The creation of this electronic copy 
of the section 83(b) election eliminates the need for a taxpayer to 
submit a copy of the section 83(b) election with his or her individual 
tax return.
    Taxpayers are reminded of their general recordkeeping 
responsibilities pursuant to section 6001 of the Code, and more 
specifically of the need to keep records that show the basis of 
property owned by the taxpayer. Taxpayers must maintain sufficient 
records to show the original cost of the property and to support the 
tax treatment of the property transfer reported on the taxpayers' 
returns. Taxpayers must keep these records as long as they may be 
needed for the administration of any provision of the Code. Generally, 
this means records that support items shown on a return must be 
retained until the period of limitations for that return expires. See 
section 6501 of the Code. A copy of any section 83(b) election made 
with respect to property must be kept until the period of limitations 
expires for the return that reports the sale or other disposition of 
the property.

Explanation of Provisions

    The proposed regulations would remove the second sentence in Sec.  
1.83-2(c) of the existing regulations. This would eliminate the 
requirement that taxpayers submit a copy of a section 83(b) election 
with their tax return for the year in which the property subject to the 
election was transferred.

Proposed Effective Date

    These regulations under section 83 are proposed to apply as of 
January 1, 2016, and would apply to property transferred on or after 
that date. Taxpayers may rely on these proposed regulations for 
property transferred on or after January 1, 2015.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It also has 
been determined that section

[[Page 42440]]

553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does 
not apply to these regulations, and because the regulations do not 
impose a collection of information on small entities, the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to 
section 7805(f) of the Code, these regulations have been submitted to 
the Chief Counsel for Advocacy of the Small Business Administration for 
comment on their impact on small business.

Comments and Request for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are timely submitted 
to the IRS as prescribed in this preamble under the ADDRESSES heading. 
The Treasury Department and the IRS request comments on all aspects of 
the proposed rules. All comments will be available at 
www.regulations.gov or upon request. A public hearing will be scheduled 
if requested in writing by any person that timely submits written or 
electronic comments. If a public hearing is scheduled, notice of the 
date, time, and place for the hearing will be published in the Federal 
Register.

Drafting Information

    The principal authors of these proposed regulations are Thomas 
Scholz and Michael Hughes, Office of the Associate Chief Counsel (Tax 
Exempt and Government Entities). However, other personnel from the IRS 
and the Treasury Department participated in their development.

List of Subjects 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES


0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

0
Par. 2. Section 1.83-2 is amended by revising paragraph (c) and adding 
paragraph (g) to read as follows:


Sec.  1.83-2  Election to include in gross income in year of transfer.

* * * * *
    (c) Manner of making election. The election referred to in 
paragraph (a) of this section is made by filing one copy of a written 
statement with the internal revenue office with which the person who 
performed the services files his return.
* * * * *
    (g) Effective/applicability date. Paragraph (c) of this section 
applies to property transferred on or after January 1, 2016.

John M. Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2015-17530 Filed 7-16-15; 8:45 am]
 BILLING CODE 4830-01-P