Correcting 83(b) Elections

[Guest KellyC]

Other than revocation, is there any procedure to correct an error on an IRC Section 83(B) election if you are still within the 30-day window for making the election?

[pjkoehler]

Take a look at PLR 9240018. There the employer erroneously computed the shares of restricted stock to which the employee was entitled under its bonus program, which resulted in an excess distribution of shares with respect to which the employee made an 83(B) election. The employer recovered its excess shares and the employee sought to correct its 83(B) election to show the lower number of shares. Presumably, although the PLR doesn't state, the initial 30-day election period had expired before the employee found out about the error. The IRS permitted the employee to correct its prior election by reducing the number of shares, leaving the election in force with respect to the remaining shares. The PLR could be read as permitting a correction in these circumstances to avoid the harshness of the effect of a revocation under Reg. Sec. 1.83-2(f). If "correction" works after the 30-day period to preserve an initial election, it should work during the 30-day period as well for correction of a similar factual error. The PLR also didn't state that the "mistake in fact" standard applicable to revocation also applies to correction. Theoretically, at least, if you're within the 30-day election period, it may be argued that a more relaxed standard should apply. But if the reason for correction in your case satisfies the "mistake in fact" standard for revocation, you should be in a strong position to submit a modification to the prior election within the 30-day election period.

[This message has been edited by PJK (edited 06-15-2000).]