To ease the financing burden of a Sec. 83(b) election, many companies offer their employees loans to cover the exercise.

An employer loan in conjunction with a Sec. 83(b) election should be recourse debt. The regulations require the employee who makes a Sec. 83(b) election to have prospective ownership rights in the property. [See Reg. secs. 1.83-3(a)(2), (3)].

With nonrecourse debt, the IRS does not view the employee as assuming any risk of decline in the value of the stock, thus a transfer has not yet occurred, and the Sec. 83(b) election is not yet available.

© 2002 California Society of Certified Public Accountants. For reprint permission, contact Aldo Maragoni, managing editor.