• That if the employee makes the election, the amount of income recognized at the end of the deferral period will be based on the value of the stock when it becomes transferrable or substantially vested, even if the value declines during the deferral period; and
• That income included at the end of the deferral will be subject to withholding, leading to a tax responsibility of the employee.
The burdens of complying with these rules, as well as the potential for penalties for failing to do so, could lead some companies to avoid qualifying as eligible corporations by, for example, altering their option and restricted stock unit programs to restrict the percentage of employees who can participate.
Conclusion
While the new Section 83(i) has already been dismissed by many, it may still prove useful under the right circumstances. Thoughtful employees, employers and advisors must weigh all of the complex requirements and considerations in order to gauge its potential use and impact.
Michael J. Nathanson, JD, LLM, is chairman, chief executive officer and president of The Colony Group. Sean Kelly, CPA, is a senior tax manager at The Colony Group. Joshua Nathanson and Matthew McKeown were summer wealth management interns at The Colony Group.