Employee could revoke a section 83(b) election within the original deadline

Plain-English summary

An employee received an option to buy employer stock that was subject to a risk of forfeiture and filed a section 83(b) election covering all of the shares. Less than 30 days after the grant, the employee asked the IRS for permission to revoke the election. A section 83(b) election ordinarily cannot be revoked without the Commissioner's consent, and the regulations generally require a mistake of fact. The IRS also recognizes that an election may be revoked on or before its original due date, and Revenue Procedure 2006-31 says such requests generally will be granted when filed within that period. Because the employee requested revocation within the 30-day election window, the IRS consented.

Ruling snapshot

• Question: Could the employee revoke the section 83(b) election before the 30-day deadline for making that election expired?
• Outcome: approved
• Key authorities: IRC § 83; Treas. Reg. § 1.83-2(f); Rev. Proc. 2006-31

Full text (IRS public release)

Internal Revenue Service                          Department of the Treasury
                                                  Washington, DC 20224
Index Number: 83.02-04
                                                  Third Party Communication: None
                                                  Date of Communication: Not Applicable
Number: 202402007
Release Date: 1/12/2024                           Person To Contact:
---------------                                   ---------------------------
------------------                                Telephone Number:
-----------------------------                     --------------------
                                                  Refer Reply To:
                                                  CC:EEE:EB:EC
                                                  PLR-110492-23
                                                  Date: October 11, 2023




Legend
Date 1         =   ------------------
X              =   ---
Employer       =   ----------------------------
Date 2         =   ----------------

Dear ----------

       This letter is in response to your request for a letter ruling, dated
in which you asked for consent to revoke an election you made under § 83(b) of the
Internal Revenue Code (Code). The facts, as represented, are as follows.

       On Date 1, you were granted an option to purchase X shares of Employer
common stock, subject to a risk of forfeiture. On Date 2, you filed an election under
§ 83(b) of the Code with the Internal Revenue Service Center where you file your
individual tax return. The § 83(b) election referenced all X shares of Employer common
stock subject to the option granted on Date 1. On ------------------- less than 30 days after
Date 1, you sent a letter to this office requesting consent to revoke your § 83(b)
election.

       Section 83 of the Code sets forth the rules for transfers of property in connection
with the performance of services. Section 83(a) provides that the excess of the fair
market value of the property transferred, at the time the property becomes substantially
vested, over the amount (if any) paid for the property, shall be included as
compensation in the service provider’s gross income for the taxable year in which the
property becomes substantially vested. Property is substantially vested when it is either
transferable or no longer subject to a substantial risk of forfeiture.

        Section 83(b) of the Code and § 1.83-2(a) of the Income Tax Regulations
(Regulations) permit the service provider to elect to include in gross income the excess
(if any) of the fair market value of the property at the time of transfer over the amount (if
any) paid for the property, as compensation for services. Under § 83(b)(2) of the Code,
an election made under § 83(b) must be made in accordance with the Regulations
thereunder and must be filed with the Internal Revenue Service no later than 30 days

PLR-110492-23                                 2

after the date that the property is transferred to the service provider.

       Section 83 of the Code and § 1.83-2(f) of the Regulations provide that an election
under § 83(b) may not be revoked without the consent of the Commissioner.
Section 1.83-2(f) provides that consent to revoke an election under § 83(b) will be
granted only in a case where the transferee is under a mistake of fact as to the
underlying transaction and must be requested within 60 days of the date on which the
mistake first became known to the person who made the election. The Service has
recognized the principle that an election made under the Code or Regulations may be
revoked on or before the due date for making the election. Section 2.08 of Rev. Proc.
2006-31, 2006-2 C.B. 32, provides that a request for consent to revoke a § 83(b)
election will generally be granted if the request is filed on or before the due date for
making that § 83(b) election.

       In the instant case, you filed your request to revoke your § 83(b) election within
the 30-day time period allowed under § 83(b) for making the election. Based solely on
the representations provided and the information and documents submitted, consent to
revoke your § 83(b) election is granted.

         The rulings contained in this letter are based upon information and
representations submitted by you and accompanied by a penalty of perjury statement
executed by you. This office has not verified any of the material submitted in support of
the request for ruling, and such material is subject to verification on examination. Except
as specifically ruled above, no opinion is expressed as to the federal tax consequences
of the transaction described above under any other provision of the Code. Specifically,
no opinion is expressed concerning other tax consequences of § 83 and its applicability
to the transaction described above. This ruling is directed only to the taxpayer who
requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited
as precedent. A copy of this letter should be attached to any income tax return to which
it is relevant.

                                                  Sincerely,


                                                  THOMAS D. SCHOLZ
                                                  Senior Counsel
                                                  Executive Compensation Branch
                                                  Office of the Associate Chief Counsel
                                                  (Employee Benefits, Exempt
                                                  Organizations and Employment Taxes)




cc: