Questions for 83(b) election tax year and if I need to include it when filing tax

[xiaochong2dai]

Hi guys!
I have two questions regarding to the 83(b) election. The company I work for granted some property to me in 2023. The Form of Section 83(b) Election that I signed says:
The date on which such property was transferred is May 31, 2023. The taxable year to which this election relates is calendar year 2023.

I signed the Form of Section 83(b) Election on June 14, 2023, and sent the originally signed Section 83(b) election to the IRS office by USPS Certified Mail with Return Receipt (within 30 days). IRS mailed back the date-stamped card (and additional 83(b) election form copy I sent) on June 21, 2023. However, In August 2023, I got a letter from IRS and IRS says "We have received your 83 (b) election and applied it to your account for the 2022 tax year".

My questions are:
(1) Shouldn't IRS apply the 83(b) election to my 2023 tax year? The grant happened on May 31, 2023 and the Form of Section 83(b) Election I signed says the tax year for which this election relates is calendar year 2023. Is it because IRS didn’t have my 2023 tax information yet when they send me the letter on August 2023? Should I contact IRS for a correction?
(2) In TurboTax, should I or where should I report the 83(b) related grants? The Form of Section 83(b) Election I signed says "The fair market value at the time of transfer (determined without regard to any restriction other than restrictions which by their terms will never lapse) of the Units is $0.00 per Unit. The amount paid for such property by the taxpayer is $0.00 per Unit." I search TurboTax community and someone says The fair market value of the award should already be included in W-2, box 1, and the IRS no longer requires that we include our 83(b) election form with our taxes when filing. In my case, the FMV is 0 and I didn't pay, so I can't tell if it's included in W-2 box 1 or not.

Thanks a lot in advance!

[ThomasM125]

I believe the 83(b) election should have been applied to your 2023 tax year. I don't know if it is necessary to contact the IRS about it though.

The purpose of the 83(b) election is to allow you to pay tax on the value of the property at ordinary tax rates when the grant is awarded to you. This allows you to treat  the gain realized on sale of the investment after that date as capital gain income, which may be advantageous to you. That being the case, I don't see why it would matter if the election was affective when it should have been in 2023, versus 2022. Either way the income on sale of the investment earned after you acquired it will be capital gain income. So I wouldn't be too concerned about that.

The other issue is why there was no income reported on your W-2 in 2023 for the grant, unless the property truly had no value then. Your employer should have included that in your wages reported in box 1 of your W-2 form. I suggest you ask your employer why there is no income reported for the value of the property on your W-2 form.

[xiaochong2dai]

Thank you so much @ThomasM125 !

(1) Yeah I was also wondering if it's necessary to contact IRS because no matter 2022 or 2023, it'll be over a year when I sell the equity in the future. So it'll be capital gain income anyway. The only concern is if there's any trouble when the (83b application) date I report (in the future tax return) mismatch with what IRS has on file. Maybe I can deal with that later if it really comes.

(2) FMV is set 0, might be because of the restriction on transferability (83b election form says may not be transferred) and the forfeiture conditions. I guess in this case, I can just forget about the equity grant when filling 2023 tax return, no need to include anything about it for my 2023 tax return, and just need to include it when doing the tax returns for the year selling the equity in the future?

Thanks again @ThomasM125 !

[ThomasM125 · Accepted solution]

Yes, it seems you are OK as far as the 2023 return is concerned.

What the 83(b) election does is allow you to pay the ordinary income portion of your grant income when you receive it, rather then when you take unrestricted possession of the property. Otherwise, when you take possession the value may be higher than when the grant was awarded resulting in higher wage income recognition before you even sell the property. With the 83(b) election, in your case it seems no tax will be due until you sell the property, as the value is $0 when you made the 83(b) election, and all of the profit from the grant will be capital gain income, short or long term depending on how long you hold the property.