Electronic or Digital Signatures Permitted for Code Section 83(b) Elections

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The Internal Revenue Service recently announced that electronic or digital signatures will be accepted for Code Section 83(b) elections.  This relief is part of the IRS’s response to the COVID-19 pandemic and is temporary.

Background

Taxpayers receiving grants of restricted stock typically recognize taxable income in connection with such grants when the right to the shares becomes vested.  However, a taxpayer may choose to include the value of the shares in his or her taxable income in the year of grant (rather than at vesting) by filing an election under Internal Revenue Code Section 83(b) with the IRS.  Taxpayers who expect that the stock’s value will increase significantly between the time of grant and the time of vesting may benefit from making such an election.

While there is no prescribed form for making a Section 83(b) election, the Treasury Regulations set forth the required elements to be included in an election and require the election to be signed by the taxpayer.

Temporary Relief Granted

In a memorandum issued by the IRS this spring, the IRS announced that electronic or digital signatures will be permitted for certain tax filings, including Section 83(b) elections.  This relief expires December 31, 2021.  However, the IRS reserved the right to update the memorandum from time to time to add or remove tax forms subject to the relief.  Therefore, we recommend confirming that Section 83(b) elections are still included in this relief prior to filing a Section 83(b) election with an electronic or digital signature.

The IRS acknowledges that electronic and digital signatures may appear in many forms when printed and may be created by many different technologies.  No specific technology is required to be qualify for this relief.

Taxpayers should be aware that the IRS memorandum does not modify the other requirements relating to Section 83(b) elections, including the requirements that (i) the election be filed not later than thirty days after the date that the property was transferred and (ii) copies of the Section 83(b) election be (A) mailed to the IRS office where the taxpayer files his or her tax return and (B) provided to the person for whom the services are performed.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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