IRS Revenue Ruling 2007-49 (IRS Resolves Key Uncertainties Related to Section 83(b))
Revenue Ruling 2007-49 resolves long standing uncertainties over whether a Section 83(b) election is required to be filed when restrictions are imposed on substantially vested stock causing that stock to become substantially nonvested. This is not an uncommon situation in venture financing transactions in which the investors require that founders subject some of their founder shares to vesting.
The revenue ruling addresses 3 situations. In Situation 1, the restrictions are imposed in the absence of an exchange of stock. In Situations 2 and 3, the restrictions are imposed in connection with a stock exchange. In Situation 2, the exchange is a tax-free reorganization. In Situation 3, the exchange is a taxable transaction.
This revenue ruling holds that if the imposition of restrictions on substantially vested stock, which causes such stock to become substantially nonvested, occurs in the absence of an exchange of stock, the substantially nonvested stock is not subject to Section 83. However, if substantially vested stock is exchanged for substantially nonvested stock, the nonvested stock is subject to Section 83."
