Occasionally a company calls me and asks me about granting a stock award to a service provider in a foreign country. That can be done, though it often involves drafting an international form of stock award agreement, sometimes involves adopting a sub-plan to be attached to the company’s regular form of equity incentive plan, and always should involve talking with foreign counsel. If the stock award is subject to vesting, the natural follow-up question I receive is whether or not the foreigner should file a Section 83(b) election.
If the award recipient is not subject to U.S. tax because they are a non-citizen and non-resident, they don’t need to file an 83(b) election unless they are concerned they’ll move to the United States during the vesting schedule (and thus become subject to U.S. taxation). In that case, if they choose to file[1], my usual advice is that they should first get a tax identification number (TIN), as a properly filed Section 83(b) election requires one.[2] The taxpayer should file the Section 83(b) election within the regular 30-day filing window. If the TIN has not been received prior to the filing of the Section 83(b) election, I recommend that the taxpayer put “applied for” in respect of the tax identification number; include a completed copy of the Form W-7 and note that they will resend the election once the TIN has been received. Foreigners who live in a foreign country, or that have lived both in their home country and the United States during the year in which they make the election (dual status aliens) should currently file the 83(b) election with the following service center:
Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0215
USA
Note, the above address should be checked prior to filing a Section 83(b) election as the IRS can change it at any time.
Finally, once the TIN has been received, resend the Section 83(b) election form to the same service center.
However, based on a conversation with an IRS agent, a former colleague of mine is of the view that the award recipient doesn’t necessarily have to obtain a TIN. If you have a foreigner who would file a Section 83(b) but for the TIN requirement, the below is probably safer (from a tax perspective) than doing nothing.[3]
- The nonresident alien founder should file an 83(b) election with all required information other than the TIN. The 83(b) election should be filed with the IRS Service Center where nonresident aliens file income tax returns (currently the above-listed Austin, Texas address).
- The nonresident alien founder should attach a cover letter explaining the circumstances (i.e. that the person does not currently have a TIN because he or she is not a U.S. taxpayer, but may become a U.S. resident before the stock vests).
- If the nonresident alien founder later becomes a U.S. taxpayer and gets a TIN, he or she should supplement the election at that point to include this information.
- The nonresident alien founder should retain as much documentation as possible, including copies of the filed cover note and election and proofs of mailing and delivery, in case a question arises later as to whether the election was timely filed.
Mike Baker frequently advises with respect to warrants and stock options. He possesses a breadth and depth of experience in tax and employee benefits & compensation law that spans multiple decades. For additional information, please contact mike@mbakertaxlaw.com.
[1] Prior to filing a Section 83(b) election, a foreigner may want to talk to an immigration attorney about how this could affect their future visa prospects.
[2] A TIN can be applied for by filing a Form W-7. A taxpayer should check box “h” and explain that the reason they are applying for a TIN is so that they can file a Section 83(b) election. By checking box “h” they are allowed to file the Form W-7 separate from the filing of any U.S. tax return. Note, however, I have had multiple clients who have had a Form W-7 returned with the comment that filing a Section 83(b) election was not a sufficient reason to be issued a TIN. Most recently this occurred February 2024. If this happens, I would view the Section 83(b) election as valid and if the nonresident alien founder later becomes a U.S. taxpayer and gets a TIN, he or she should supplement the election at that point to include this information.
[3] I have once seen a Section 83(b) election rejected due to lack of a TIN.