The Internal Revenue Service (IRS) recently issued new proposed regulations clarifying when restricted property is granted with a “substantial risk of forfeiture” and allows for the deferral of taxation. These regulations, if finalized, would limit the scenarios in which property is subject to a substantial risk of forfeiture.

The Internal Revenue Service recently issued new proposed regulations (the Proposed Regulations) under section 83 of the Internal Revenue Code of 1986, as amended. Section 83 generally provides that the excess of the fair market value of property transferred to a person (the Service Provider) in exchange for services provided to the transferor (the Service Recipient), 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.

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