Sharing the Wealth with Section 83(i)
W. Lynn Loden, Managing Director in charge of Transaction Services and Tax Advisory for Opportune LLP, offers insight into how the Section 83(i) provision in the Tax Cuts and Jobs Act of 2017 (TCJA) lowers the income tax burden on working people and ultimately increaes the value of a company.
“This provision allows working people to share in the fruits of their labors which generate growth in the equity value of the private company they work for,” he said, and it does it by allowing taxpayers to defer the recognition of income and payment of income tax on the receipt of private-company stock to either a cash monetization event — such as an IPO or cash buyout — or five years, whichever is earlier.
“The idea is to expand the wealth-sharing to the middle and lower-middle working class that work for private companies, and give them some of the things that senior executives in publicly traded companies get,” he added. “This opens up Section 83 to private entities. It’s not to be used by owners and top officers — it is for working-class people. Working people see top executives in public companies doing this, and they think it’s not fair that they’re not able to have something similar. What [TCJA co-architect Rep. Kevin] Brady was doing was to address the misallocation of wealth in U.S. capital — it expands Section 83 share-based compensation to a targeted group of middle-class folks who are not owners or senior executives.”