I filed an 83(b) election for stock I purchased in 2011 with the IRS with the 30 days window, but later did not include a copy of it in that year’s tax return.
The the purchase price and the fair market value was the same, so no capital gains tax was applicable that year.
Does this matter? And if so how would I remedy this?
Thanks
I've consulted with 5-6 accountants and people who've had the issue before. The advice I received boils down to:
"If you do not attach your 83b with your personal tax return it is not effective. However you can still correct the requirement to file it along with your tax return, because you are within the 3 year window of when the return was originally due."
So you can amend your return/file it late within a certain window and things should be OK. The accountants that have confirmed this are Vanessa Kruze, Wray Rives and Augie Rakow - all of them corporate and credible accountants. You also need to keep onto the confirmation the IRS sent you in case of an audit.
There is nothing on IRS.gov about attaching your 83b on a filed late or amended return but those accountants are people who say they've seen it happen frequently, have consulted with the IRS for solutions and that's the one they'd advise one to do in such situation.
disclaimer: I am not a CPA
I've talked to several very experienced accountants that deal with startup shares, stock 83(b)'s, etc. weekly (based in SF, CA) as this issue would have had a massive impact on me.
The most important part of filing an 83(b) is notifying the IRS within 30 days. The law requires the written notification within the 30 day window. Adding it to that years tax return is an IRS procedure.
Forgetting to include a copy of that years tax return is apparently a common occurrence when no tax was owed (0 spread, you actually paid the FMV). And the accepted method to resolve this is to simply file a blank amendment for that years return and include the copy of the 83(b) election.
It matters because that is the requirement for the 83(b) selection to be valid. Since the context is 83(b) election, I assume you got stocks/options as compensation and didn't pay for them the FMV, thus it should have been included in your income for that year. If you didn't include the election letter - I can only guess that you also didn't include the income. Hence - you lost your election.
If you did include the income and paid the tax accordingly, or if no tax was due (you actually paid the FMV), you may try amending the return and attaching the letter, but I'd suggest talking to a professional before doing it on your own. Make sure to keep a proof (USPS certified mailing receipt) of mailing the letter within the 30 days window.
This may be relevant: it suggests that IRS is lenient with the attachment of the form with 1040.
To paraphrase: "The ruling involved a taxpayer who timely filed the election with the IRS within 30 days of the property transfer but who did not attach a copy of the election to his or her Form 1040 for the year of the transfer. Fortunately for the taxpayer in question, the ruling indicated that the submission of the election to the IRS within 30 days of the property transfer fulfilled the requirements for a valid election, and the failure to attach the copy to the tax return did not affect the validity of the election. The IRS requested that the taxpayer forward a copy of the election to the IRS to be associated with the processing of the tax return. - See more at: http://www.bnncpa.com/services/employee_benefit_plans/blog/irs_rules_that_failure_to_attach_83b_election_to_form_1040_did_not_invalida#sthash.0c3h2nJY.dpuf"
If someone wants to grok the IRS ruling: http://www.irs.gov/pub/irs-wd/1405008.pdf
And this is the article where I saw the above referenced. www.bnncpa.com/services/employee_benefit_plans/blog/irs_rules_that_failure_to_attach_83b_election_to_form_1040_did_not_invalida
