April 26, 2021
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On April 15, 2021, the U.S. Internal Revenue Service (the “IRS”) issued to services and enforcement employees of the IRS, a memorandum (the “April 2021 Memorandum”)[1] that extends a temporary deviation from the IRS’s historical practice of requiring hand signatures for most tax returns, election statements and other documents filed with the IRS to elections under section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”).[2],[3]
During 2020, the IRS granted temporary deviations from its hand signature requirement with respect to certain IRS forms.[4] However, none of the prior IRS memoranda permitted the use of electronic or digital signatures for elections under section 83(b).[5] Accordingly, prior to the issuance of the April 2021 Memorandum, a taxpayer making elections under section 83 was required to mail an original, hand-signed (not a scanned image of a handwritten signature) election to the IRS no more than thirty days following the date that the applicable property was transferred to the taxpayer.
The April 2021 Memorandum provides that taxpayers and their representatives can use electronic or digital signatures[6] when signing section 83(b) elections provided that such elections are signed and postmarked on or after August 28, 2020.
The temporary deviation expires on December 31, 2021. Furthermore, the April 2021 Memorandum states that the attachment setting forth the forms and elections to which the relief applies “may be updated, from time to time, to either add or remove applicable forms as appropriate.” Accordingly, taxpayers should check with their advisors before mailing an electronically or digitally signed section 83(b) election to the IRS in order to ensure that the section 83(b) election was not previously removed from the list of forms covered by the temporary deviation.
Taxpayers should be aware that the April 2021 Memorandum does not modify the other requirements in section 1.83-2 of the Treasury regulations, including the requirements that (i) the election be filed not later than thirty days after the date that the property was transferred and (ii) copies of the section 83(b) election be mailed to (A) the IRS office where the taxpayer files its tax return and (B) the person for whom the services are performed.
[1] Control Number NHQ-10-1220-000.
[2] Unless otherwise indicated, all “section” references contained herein are to sections of the Code.
[3] Section 6061(a) provides that “[e]xcept as otherwise provided by [section 6061(b)] and sections 6062 and 6063, any return, statement, or other document required to be made under any provision of the internal revenue laws or regulations shall be signed in accordance with forms or regulations prescribed by the Secretary.” Furthermore, section 6061(b) provides that “the Secretary shall develop procedures for the acceptance of signatures in digital or other electronic form. Until such time as such procedures are in place, the Secretary may—waive the requirement of a signature for; or provide for alternative methods of signing or subscribing, a particular type or class of return, declaration, statement, or other document required or permitted to be made or written under internal revenue laws and regulations.”
While the IRS has created exceptions for certain forms (such as Forms 720, 940, 941, 990, 1040, 1065, 1120, 2290, 2848, 8655, 8849, and 8878), the IRS has required handwritten signatures (for this purpose, scanned or digitized images of handwritten signatures are treated as electronic signatures and are not handwritten signatures) for all other IRS documents (including all returns, statements, elections or other documents made under any provision of the Code, published guidance, publications, forms, instructions).
[4] The forms to which the prior memoranda were applicable included Forms 3115, 8832, 8802, 1066, 706, 706-NA, 709, 1120-ND, 1120-RIC, 1120-C, 1120-REIT, 1120-L, 1120-PC, 1128, 3520, 3520-A, 8453 8878, 8879, 8038, 8038-G and 8038-GC.
[5] Under section 83(b), a taxpayer that receives property in connection with the performance of services may elect to include in its gross income for the taxable year in which the property is transferred the excess, if any, of (i) the fair market value of the property as of the date of the transfer over (ii) the amount paid (if any) for such property (even though such property was “substantially nonvested” (within the meaning of section 1.83-3(b) of the Treasury regulations) when transferred). Section 83(b)(1); Treas. Reg. § 1.83-2(a). Section 83(b)(2) provides that “[a]n election under section 83(b)(1) with respect to any transfer of property shall be made in such manner as the Secretary prescribes and shall be made not later than 30 days after the date of such transfer.” Section 1.83-2(e) of the Treasury regulations provides that the section 83(b) election must be “signed by the person making the election,” but does not expressly permit electronic signatures.
[6] The April 2021 Memorandum provides that “[e]lectronic and digital signatures appear in many forms when printed and may be created by many different technologies. No specific technology is required for this purpose during this temporary deviation.” The IRS previously stated that “[t]he IRS will accept images of signatures (scanned or photographed), including but not limited to, the following common file types supported by Microsoft 365: tiff, jpg, jpeg, pdf, Microsoft Office suite, or Zip. The IRS will accept Digital Signatures that use encryption techniques (for example, DocuSign) to provide proof of original and unmodified documentation on one of the following common file types supported by Microsoft 365: tiff, jpg, jpeg, pdf, Microsoft Office suite, or Zip.” Because the language contained in the April 2021 Memorandum appears to be more expansive than the language previously used by the IRS, it would appear that any technology that was previously listed (including DocuSign) should be acceptable for the section 83(b) elections (absent future guidance from the IRS to the contrary).
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