Section 83(i) Elections for Qualified Stock Grants

Summary

Section 83(i) of the Internal Revenue Code, added under 2017 tax reform legislation (Pub. L. No. 115-97) (the 2017 Tax Act), allows eligible private corporations to establish equity incentive programs that enable non-excluded employees to make a special tax deferral election on their stock options or share-settled restricted stock units (RSUs). The primary purpose of the new rules is to help mitigate the tax burden that can arise when employees receive taxable equity-based compensation in the form of illiquid shares of company stock. This practice note describes the Section 83(i) rules and IRS guidance to help counsel advising their private-company clients on the availability of, and compliance considerations for, a qualified equity grant program, including notice and reporting obligations for employers that grant qualified stock awards that are eligible for the Section 83(i) election.