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On June 23, 2015, a taxpayer is given a share of equity (429…

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On June 23, 2015, a...
On June 23, 2015, a taxpayer is given a share of equity (429 units), in an LLC in exchange for rendering management services to the LLC. The fmv of the units he receives is -0- at the time of transfer. His Management Agreement, which he executed on 6/23/2015,
states that 357 of the units he was granted shall vest & shall not be subject to forfeiture based on his signing the Management Agreement within 24 months of the effective date & the remaining 72 units shall be granted upon his closing 1,000,000 of the Company's
equity, debt or grant financings with a third party investor, within 24 months of the effective date. Please note the taxpayer also executed an 83b election on 6/23/2015. How is this election filed with the IRS? Is it sent in with the taxpayer's 2015 tax return?
Also, does he have to report the grant on Schedule D of his 2015 tax return or in the year that the equity vests? Please note this is NOT a question for a business tutor. It is for a tax specialist
Submitted: 2 years ago.Category: Tax
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6/25/2015
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,393
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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First, let me give you somethng that may be useful:• Copy and paste the 83(b) Election Form sample below and edit the fields that are highlighted in yellow.• Copy and paste the IRS sample cover letter below and edit the fields that are highlighted in red.• Enclose a self-addressed stamped envelope• Mail it to the IRS address below within 30 days after the stock grant (there is no relief if you file late).• Mail Certified Return Receipt Requested to prove timely delivery.• Attach a copy of the 83(b) to your personal tax return in Year 1. (this means that you cannot e-file your return that year).• If you live in a community property state, your spouse also needs to sign the 83(b) Election Form.• Give a copy of the signed 83(b) Election Form to the Company.
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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Note that the Color may not transfer here ... just look for the XXX's and the language that's intended for the user, such as "YOU CAN COPY AND PASTE FROM YOUR RESTRICTED STOCK GRANT THE RESTRICTIONS, SUCH AS VESTING, ETC." SAMPLE SECTION 83(b) ELECTION FORM:Election Under Section 83(b) of the Internal Revenue Code The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below:1. Name and Address of Taxpayer:XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXTaxpayer SSN # :XXXXXXXXXXX2. Description of property with respect to which election is being made: XXXXX shares of the common stock of XXXXXXX, (the “Company”) ($X.XXXX par value).3. Date on which property was transferred is XXXXXXX.4. The taxable year for which this election is being made is calendar year 20XX.5. Nature of restrictions to which property is subject: YOU CAN COPY AND PASTE FROM YOUR RESTRICTED STOCK GRANT THE RESTRICTIONS, SUCH AS VESTING, ETC.6. The fair market value at time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the property with respect to which this election is being made is $X.XX per share, for a total aggregate value of $XXX.XX.7. The amount paid by the taxpayer for the property is $XXX.8. A copy of this statement has been furnished to [Company name].Dated: XXXXXX XX, 20XX Signed,___________________________________XXXXXXXX X XXXXXXXXXXXXXX____________________________________SPOUSE SIGNATURE, IF COMMUNITY PROP STATE ____________________________________SPOUSE NAME PRINTED
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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
And finally, here's a template for the letter to IRS (again you MUST send within 30 days)
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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
SAMPLE TRANSMITTAL LETTER TO IRS:Name and Address of Taxpayer:XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXTaxpayer SSN # :XXXXXXXXXXXDated: XXXXXX XX, 20XXIRS Service Center Address From BelowDear Sir or Madam:Pursuant to Treasury Regulations Section 1.83-2(c) promulgated under Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”), enclosed please find a copy of an election under Section 83(b) of the Code. Also, attached are a self-addressed stamped envelope and a signed copy of my 83(b) Election Form. Please date stamp the copy of the Election Form, enclose it in the attached envelope and mail it to me.Thank you,________________________________XXXXXXXX X XXXXXXXXXEnclosures
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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
WHERE TO MAIL THE LETTER AND 83(b) ELECTION FORM TO:If you live in: Alabama, Georgia, North Carolina, South Carolina, Kentucky, Tennessee, Missouri, New Jersey, Virginia, West Virginia, Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New York, Pennsylvania, Rhode Island, Vermont:Department of the TreasuryInternal Revenue ServiceKansas City, MO###-##-####lorida, Louisiana, Mississippi, Texas:Department of the TreasuryInternal Revenue ServiceAustin, TX###-##-####laska, Arizona, California, Colorado, Hawaii, Nevada, Oregon, Washington,Arkansas, Idaho, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Ohio, Oklahoma, South Dakota, Utah, Wisconsin, Wyoming:Department of the TreasuryInternal Revenue ServiceFresno, CA###-##-####
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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
SO back you to questions ... (1) Use the formats above to send within 30 days, then, again, attach a copy of the 83(b) form itself to TP's tax return in Year 1. (so, no e-file that year).
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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
And (2) no you don't use the schedule D until you SELL. THe 83(b) election declares, explicitly, that even though you have not vested your stock yet, you wish to be treated as if you have full ownership as of the exercise date. SO, if you exercise your stock options when the fair market value equals the exercise price, the 83(b) leaves you with no tax liability until you actually sell your shares. THAT's when the schedule D comes into play.
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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Now, the decision of whether or not to early-exercise is a complicated one, and may not make sense in some situations. But, if you do decide to early exercise, just remember: Always File Your 83(b) within 30 days.
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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Let me know if you have questions ... I have clients coming in this afternoon (3:45 eastern) ... but I'll checking back in all evening Lane If this HAS helped, I'd appreciate a positive rating, using the smiley faces or stars on your screen ... that's the ONLY WAY I'm credited for the work here.
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Customer reply replied 2 years ago
If in a community property state, should the sample letter to the IRS be signed by both the husband & wife?
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Yes, If you live in a community property state, your spouse also needs to sign the 83(b) Election Form.
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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Other questions?If not, I'd appreciate a positive rating, using the smiley faces or stars on your screen ... that's the ONLY WAY I'm credited for the work here.
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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Hi,
I'm just checking back in to see how everything's going.
Did my answer help?
Let me know ...
Lane
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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 2 years ago
Hi,
Did you see the community property answer to your follow-up question?
If this HAS helped, I would appreciate a positive rating (using the stars or smiley faces on your screen)… That’s the ONLY WAY I'm credited for the work here.
Lane
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Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
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