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The new tax bill created an election under Section 83(i) of the Internal Revenue Code. This election is available to qualified employees of private companies who wish to defer income taxation for up to 5 years from a “qualified equity grant” (QEG). A QEG may be shares received from exercised stock options or a settlement of a restricted stock unit (RSU).
The 83(i) election must be made within 30 days of the award becoming substantially vested or transferable, whichever occurs earlier.
At the time QEG stock is transferred, the employer is responsible for notifying employees of the following:
- The stock is eligible for the 83(i) election
- The amount of income required to be included at the end of the deferral period
- That the amount of income was calculated at the time the stock first becomes substantially vested, notwithstanding whether the value of the stock has declined during the deferral period.
The IRS has yet to publish guidance on the new 83(i) election. However, we decided to exercise a single share of Carta stock and file an accompanying 83(i) election to test if it would be accepted. On January 9th, we received confirmation from the IRS’ Fresno office that the election was received.
We have attached the form we used to file the election. If you have received a notice from your employer that the election is available and you wish to make the election, feel free to use the attached form.
This post and the election form should not be considered tax or legal advice.