SECTION 5. EXAMPLES

Example 1 . On July 10, 2006, in connection with the performance of services, Company M transfers 100 shares of substantially nonvested Company M stock to A, its employee. The restricted stock agreement provides that the stock will revert to Company M if A’s employment is terminated for any reason before July 10, 2010. A pays $50X for the shares, which have an aggregate fair market value of $100X on July 10, 2006. On that same day, A files a valid election under § 83(b). On July 28, 2006, A learns that the forfeiture provision in the stock agreement means A will forfeit the stock even if Company M terminates A’s employment without cause. In addition, A realizes that A misunderstood the tax results of filing the election. On August 16, 2006, A files a request for a ruling from the Internal Revenue Service for consent to revoke A’s § 83(b) election. The request cites A’s misunderstanding of the forfeiture provision and A’s misunderstanding of the tax results as the basis for the ruling request. While A’s request for a ruling is made within 60 days of the date A learns the full meaning of the forfeiture provision and when A realizes the tax results of filing the election, neither reason for which A requests the revocation is a “mistake of fact as to the underlying transaction.” The underlying transaction is A’s receipt of the restricted stock transferred pursuant to the employment agreement. A’s misunderstanding of the forfeiture provision is not a mistake of fact as to the underlying transaction. Rather, it is a failure to understand the substantial risk of forfeiture set forth in the restricted stock agreement. Additionally, A’s misunderstanding of the tax results of the election is a mistake of law and not a mistake of fact. Accordingly, consent to revoke the § 83(b) election will not be granted.

Example 2 . The facts are the same as in Exam- ple 1, except that the request for a ruling is filed on August 4, 2006. Because the request is filed within the 30-day period during which the § 83(b) election

26 CFR 601.105: Examination of returns and claims for refund, credit or abatement; determination of cor- rect tax liability. (Also: Part 1, §§ 83; 1.83–2.)

Rev. Proc. 2006–31