5500 Preparer's Manual for 2012 Plan Years
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The IRS has issued proposed amendments to regulations defining "substantial risk of forfeiture" involving property transferred in connection with the performance of services under Code Sec. 83. The proposed regulations would apply as of January 1, 2013 and would apply to property transferred on or after that date. However, taxpayers may rely on the proposed rules for property transferred after May 30, 2012, the date of publication in the Federal Register.
The proposed amendments would clarify that a substantial risk of forfeiture may be established only through a service condition or a condition related to the purpose of the transfer. In addition, the proposed amendments would clarify that, in determining whether a substantial risk of forfeiture exists based on a condition related to the purpose of the transfer, both the likelihood that the forfeiture event will occur and the likelihood that the forfeiture will be enforced must be considered.
The proposed regulations would also amend the existing rules to add a sentence stating that a transfer restriction, including a transfer restriction which carries the potential for forfeiture or disgorgement of some or all of the property or other penalties if the restriction is violated, does not create a substantial risk of forfeiture. The purpose of this addition is to incorporate the holding in Rev. Rul. 2005-48. Furthermore, consistent with Rev. Rul. 2005-48, the proposed regulations include an example illustrating the application of section 16(b) of the Securities and Exchange Act of 1934 to an option.
Finally, the proposed regulations would add two additional examples illustrating that a substantial risk of forfeiture is not created solely as a result of potential liability under Rule 10b-5 of the Exchange Act or a lock-up agreement. Rev. Rul. 2005-48 will be obsoleted when the proposed regulations are published as final regulations.
Source: 77 FR 31783, May 30, 2012.
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