Income Tax Attorney Bruce Givner Clarifies Property Forfeiture Rules under Code Section 83

by Bruce Givner on July 17, 2012

"The IRS has issued proposed regulations to clarify the property forfeiture rules under Internal Revenue Code Section 83," announced Income Tax Planning and Tax Litigator Bruce Givner.

"IRC Section 83 controls the timing and any amount of income a taxpayer must include in gross income for property transferred to a service provider subject to restrictions and forfeiture provisions, such as restricted stock," explained Givner.  Currently, a service provider who received property in payment for the performance of services must include in his or her gross income the property's fair market value when the property is first transferable or no longer “subject to a substantial risk of forfeiture.”  Under the proposed regulations:

  • A substantial risk of forfeiture may only be established through a service condition or a condition related to the purpose of the transfer;
  • In determining whether a condition related to the purpose of the transfer creates a substantial risk of forfeiture, both the likelihood that the condition will occur and that the forfeiture will be enforced must be considered; and
  • A substantial risk of forfeiture is not created by transfer restrictions on securities, such as lock-up agreements or insider trading restrictions under Rule 10b-5 of the Securities Exchange Act of 1934 (the “Exchange Act”), except with respect to the period during which a sale of the securities for a profit could subject the seller to a suit under Section 16(b) of the Exchange Act.

The proposed regulations affect property transferred on or after January 1, 2013.  However, taxpayers can rely on the proposed regulations for any property transferred after May 30, 2012.

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Givner & Kaye focuses on income tax planning, tax litigation, and asset protection plans in Beverly Hills, Calabasas, West Los Angeles, Hollywood, and other areas of Los Angeles County.  On the first and third Thursday of every month, Givner & Kaye hosts its MCLE & CE accredited series - "Thursday Insights."   If you have questions about complex tax issues, call Los Angeles Tax Attorneys Givner & Kaye at (310) 207-8008 today.

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