BYU Law Review
Abstract
Property awards, such as equity, are taxable to the recipient and have tax implications for employers, too. Without a recipient making an 83(b) election, property awards are taxable when they are granted. For awards that have vesting requirements or are considered “restricted,” they are generally taxable upon vesting. However, making an 83(b) election allows recipients of restricted property awards to be taxed as if the property were vested, meaning more income will shift from ordinary tax rate treatment to preferential tax rate treatment.
The preferential tax system is foundational to the 83(b) election. Advocates believe that preferential tax rates in an 83(b) context promote economic growth and encourage efficient capital allocation. However, critics contend that 83(b) elections disproportionately benefit the wealthy because they require electors to pay taxes earlier, which may disadvantage lower-income individuals. Two similarly situated employees may receive significantly different tax treatment based on the type of compensation and whether they make the 83(b) election. Furthermore, the complexities and rigidity of this provision of the tax code create their own inequities. Although the 83(b) election grants flexibility and control for taxpayers, it needs more flexibility by extending the deadline to file. Perhaps providing downside protection for 83(b) electors can encourage more employers to grant property to their employees and service providers. Ultimately, these solutions will allow more people to enjoy the benefits of preferential tax treatment, thereby making preferential tax rates more equitable for everyone.
Rights
© 2024 Brigham Young University Law Review
Recommended Citation
Brayden Call,
Exploring Flexibility in 83(b) Elections: A Tax Policy Proposal,
49 BYU L. Rev.
895
(2024).
Available at: https://digitalcommons.law.byu.edu/lawreview/vol49/iss3/10
