How to file an 83(i) election on the exercise of incentive stock options

[itonewbie · Accepted solution]

It should be made in a similar way as §83(b) and "no later than 30 days after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier", according to §83(i)(4)(A) and the Explanatory Statement of Conference Report, provided the employer is able to provide the notice required.

As with §83(b), there are potential downsides to making the election.  I would ensure the client fully understands the implications and have that documented before making the election.

[itonewbie]

Also just noticed from your duplicate post you're actually looking at making this election for an ISO instead of NQSO - you did mention ISO in this post but I totally overlooked it.  This makes even less sense because you would effectively forego the preferential tax treatments for ISO under §3401(i), etc.  You probably have good reasons but just in case you do not fully understand the different code sections that apply to statutory and non-statutory options, you may want to read up on these before advising your client.

[sjrcpa]

:+1:

[brownstaxservice]

Still not sure what paperwork to file for this designation. Any ideas?

[sjrcpa]

 Aplain piece of paper, written up similar to an 83(b) election.

[itonewbie]

§83(i) is not a designation.  If you must make the election, you can refer to §§1.83-2 and Rev. Proc. 2012-29, both of which pertain to §83(b), for the details required and format to follow for §83(i) election.

[sjrcpa]

This just in:

IRS Issues Guidance on Employee Election to Defer Income from Qualified Equity Grants:  In a recent Notice and News Release, the IRS provides guidance on the new election allowing employees to defer income from qualifying equity grants under IRC Sec. 83(i), added by the Tax Cuts and Jobs Act. Among the many eligibility and qualification requirements, the corporation must have a written plan under which not less than 80% of all employees who provide services to the corporation in the U.S. are granted stock options or Restricted Stock Units (RSUs) with the same rights and privileges to receive qualified stock. The Notice provides that the satisfaction of this 80% requirement is determined on a calendar-year basis. The Notice also requires that employers must make an estimate of the value of the stock treated as wages paid and make timely income tax withholding deposits on that estimate, and employees must agree that the deferral stock be deposited into escrow to ensure the withholding requirements are met. Notice 2018-97 and News Release IR 2018-246

[sjrcpa]

I don't think anyone knows yet.