Proposed US Regulations Clarifying “Substantial Risk of Forfeiture”

June 28, 2012
The IRS recently issued new proposed regulations under section 83 of the Internal Revenue Code of 1986. Section 83 generally provides that the excess of the fair market value of property transferred to a person in exchange for services provided to the transferor, over the amount paid (if any) by the Service Provider for such property, is immediately taxable to the Service Provider. However, property is not treated as having been transferred to a Service Provider until such property is “transferable” or not subject to a “substantial risk of forfeiture.” Accordingly, a grant of “restricted” property is a common form of compensation which, under the right circumstances, allows for the deferral of taxation by the Service Provider. This update explains the new proposed regulations.