Rev. Proc. 83-38

Section 1. Purpose

The purpose of this revenue procedure is to provide guidance to individual taxpayers concerning the reporting of dividends on restricted stock that is not substantially vested within the meaning of section 83 of the Internal Revenue Code, when the taxpayer has made the election under section 83(b) of the Code. Rev. Proc. 80-11, 1980-1 C.B. 616, is distinguished.

Sec. 2. Background

.01 Rev. Proc. 80-11 provides guidance to individual taxpayers on reporting dividends on restricted stock that is not substantially vested within the meaning of section 83 of the Code.

.02 Citing section 1.83-1 of the Income Tax Regulations, Rev. Proc. 80-11 states that until property that is transferred to an employee in connection with the performance of services becomes substantially vested, the transferor is regarded as the owner of such property and any income from such property received by the employee constitutes additional compensation to be included in gross income for the taxable year such income is received. Thus, income (dividends) received by an employee on such restricted stock is to be reported as compensation income in the appropriate place on the employee's federal income tax return.

.03 Section 83(b) of the Code and 1.83-2(a) of the regulations provide that an employee who performs services in connection with which property is transferred may elect to include in gross income for the year such property is transferred the excess (if any) of the fair market value of property at the time of transfer (determined without regard to any restriction other than a restriction which by its terms will never lapse) over the amount (if any) paid for such property, as compensation for services. Rev. Rul. 83-22, page 17, this Bulletin, concludes that the regulations under section 83(b) treat property transferred to an employee in connection with the performance of services as substantially vested when the employee makes the election. Accordingly, under these circumstances, the employee is regarded as the owner of restricted stock and a dividend paid to the employee is not additional compensation but retains its character as a dividend in the hands of the employee. Thus, except as provided by section 116 of the Code, an employee will include such dividends in gross income.

.04 Section 6042 of the Code and the regulations thereunder require every person who makes payments of dividends of $10 or more in any calendar year to make an information return on a Statement for Recipients of Dividends and Distributions, Form 1099-DIV.

Sec. 3. Procedure

An employee receiving dividends on restricted stock for which an election under section 83(b) of the Code has been made will include the amount of such dividends, as shown on Form 1099-DIV, on the employee's Form 1040, Form 1040A, or 1040EZ. The employee will also list the amount of such dividends on Schedule B (Form 1040) or Part I (Form 1040A) if the amount of dividends received from all sources exceeds $400; a Form 1040EZ cannot be filed if the amount of dividends received from all sources exceeds $400.

Sec. 4. Effect on Other Revenue Procedures

Rev. Proc. 80-11 is distinguished.

Sec. 5. Effective Date

This revenue procedure is effective May 31, 1983, the date of its publication.