This article analyzes the effects of IRC § 83 from the perspective of those most often subject to it. While § 83 remains a critical tax consideration for entrepreneurs, this article concludes that § 83 has become, in practice, a solution searching for a problem that in fact causes more problems than it solves. Drafters of § 83 believed they were closing a significant loophole regarding the taxation of executive compensation. Looking at the problem legislators believed they were solving in the context of contemporary executive compensation structures, it is hard to understand what the actual problem was. Section 83(b) was supposed to offer a convenient solution. In reality, its arbitrary 30-day deadline serves as a potentially devastating trap for the unwary. From a policy perspective, cleverly titled laws, such as the JOBS Act, were enacted under the guise of helping entrepreneurs and small businesses and promoting capital formation. Results have been less than stunning. Real reform lies in simplifying the capital formation process and incentivizing entrepreneurs. If doing that requires going back to the proverbial drawing board, we should admit that and move forward. Sections I–IV of this article review IRC § 83 from a mechanical, economic, and broader policy perspective. Sections V and VI identify specific, practical, contemporary problems that arise in applying § 83 to entrepreneurial and capital formation activities, particularly in comparison to substantively similar activities, such as issuing incentive stock options. Section VII proposes modest and simple, but effective reforms that remain mindful of the broader goals of tax neutrality.
Charles F. McCormick,
RSP Redux: Is IRC Section 83’s Overreach “in [C]onnection with the [P]erformance of [S]ervices” the Real “[U]nwarranted and [U]nintended” Result?,
Bus. Entrepreneurship & Tax L. Rev.
Available at: https://scholarship.law.missouri.edu/betr/vol2/iss1/4