81 FR 48707 - Property Transferred in Connection With the Performance of Services

DEPARTMENT OF THE TREASURY
Internal Revenue Service

Federal Register Volume 81, Issue 143 (July 26, 2016)

This document contains final regulations relating to property transferred in connection with the performance of services. These final 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 81, Number 143 (Tuesday, July 26, 2016)]
[Rules and Regulations]
[Pages 48707-48708]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-17591]


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

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9779]
RIN 1545-BM63


Property Transferred in Connection With the Performance of 
Services

AGENCY: Internal Revenue Service, Department of Treasury.

ACTION: Final regulations.

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

SUMMARY: This document contains final regulations relating to property 
transferred in connection with the performance of services. These final 
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: Effective Date: These regulations are effective on July 26, 
2016.
    Applicability Date: For dates of applicability, see Sec.  1.83-
2(g).

FOR FURTHER INFORMATION CONTACT: Thomas Scholz or Michael Hughes at 
(202) 317-5600 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    Section 83 of the Internal Revenue Code (Code) addresses the tax 
consequences of a transfer of property in connection with the 
performance of services. Section 83(a) of the Code provides generally 
that the excess of the fair market value of the transferred 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 under section 83(b) must be made in accordance 
with the regulations thereunder. Under Sec.  1.83-2(c), the election 
must be filed with the IRS no later than 30 days after the date on 
which the property is transferred, and a copy of the election must be 
submitted with the taxpayer's income tax return for the taxable year in 
which the property is transferred.
    On July 17, 2015, the Department of the Treasury (Treasury) and the 
Internal Revenue Service (IRS) published a notice of proposed 
rulemaking (REG-135524-14) in the Federal Register (137 FR 42439) under 
section 83 of the Code eliminating the requirement that a copy of a 
section 83(b) election be submitted with the taxpayer's income tax 
return for the taxable year in which the property is transferred. 
Treasury and the IRS received no comments responding to the notice of 
proposed rulemaking. No public hearing was requested and no public 
hearing was held. Treasury and the IRS now adopt the proposed 
regulations as final regulations without modification.

Explanation of Provisions

    These final regulations remove the second sentence in Sec.  1.83-
2(c) of the existing regulations, which requires that a taxpayer submit 
a copy of a section 83(b) election with the taxpayer's tax return for 
the year in which the property subject to the election was transferred. 
Accordingly, under these final regulations, a taxpayer is no longer 
required to file a copy of a section 83(b) election with the taxpayer's 
income 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.

[[Page 48708]]

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 any return with respect to which the 
income inclusion or basis of the property is relevant.

Applicability Date

    These regulations apply to property transferred on or after January 
1, 2016. For transfers of property on or after January 1, 2015 and 
prior to January 1, 2016, the preamble to the proposed regulations 
provides that taxpayers may rely on the guidance in the proposed 
regulations (which is identical to the guidance contained in these 
final regulations).

Effect on Other Documents

    Rev. Proc. 2012-29 (IRB 2012-28, 49) states that a taxpayer making 
a section 83(b) election must submit a copy of the election with his or 
her tax return for the taxable year in which such property was 
transferred. Effective as of July 26, 2016, Rev. Proc. 2012-29 is 
revoked, in part, to the extent it requires, inconsistent with these 
final regulations, a taxpayer to submit a copy of a section 83(b) 
election with his or her income tax return.

Statement of Availability of IRS Documents

    Rev. Proc. 2012-29 is published in the Internal Revenue Bulletin 
(or Cumulative Bulletin) and is available from the Superintendent of 
Documents, U.S. Government Printing Office, Washington, DC 20402, or by 
visiting the IRS Web site at http://www.irs.gov.

Special Analyses

    Certain IRS regulations, including this one, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory impact assessment is 
not required. It also has been determined that section 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.

Drafting Information

    The principal authors of these final 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 participated in their development.

List of Subjects 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is 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.
    Approved: April 20, 2016.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2016-17591 Filed 7-25-16; 8:45 am]
 BILLING CODE 4830-01-P