Advantages and Disadvantages of the 83(b) Election for Restricted Stock

Under the Internal Revenue Code, a transfer of property in connection with the performance of services by an employee or other service provider will generally result in the recognition of compensation income at ordinary rates when the property is either transferable or not subject to a substantial risk of forfeiture. This basic rule can bring about undesirable tax results in many contexts, including the compensatory transfer of restricted stock. In addition, the difference between federal ordinary-income tax rates versus capital gains rates has caused many recipients of restricted stock to focus on whether there are effective strategies to take advantage of the difference between these tax rates. One possible way to address these matters is for the employee or other service provider to make a ‘Section 83(b)' election (under Section 83(b) of the Code) to have income recognized at the time restricted stock is granted. However, there are pros and cons to the making of such an election, and the election will therefore not always be preferable from a planning perspective. This topic helps issuers and service providers alike understand the rules governing the taxation of restricted stock, and the manner in which a Section 83(b) election might or might not be helpful to their tax-planning efforts. This material will include a discussion of certain specific situations in which the election might be particularly beneficial.

Learning Objectives:

• You will be able to discuss special issues for transfers at full fair market value.
• You will be able to identify certain miscellaneous issues.
• You will be able to review tax consequences. 
•  You will be able to describe contrast with deferred compensation.

For more information or to register, please visit the program website.