The 83(b) election: 30 days that matter

What the election does

Under section 83 of the Internal Revenue Code, property received in connection with services, such as founder stock that the company can buy back if you leave, is generally taxed when it vests. At each vesting date, the difference between the stock's value then and what you paid is treated as income. If the company's value has grown, that can mean tax on paper gains with no cash to pay it.

Section 83(b) lets you elect to include the value in income for the year the stock is transferred instead. The amount included is the fair market value at transfer, minus what you paid. The statute says the election must be made no later than 30 days after the date of transfer, and that it may not be revoked except with the consent of the IRS.

How to file

The IRS has published Form 15620, Section 83(b) Election. Its instructions say using the form is voluntary: you may instead file a written statement that meets the requirements of Treasury Regulation section 1.83-2. The IRS says to file the form or statement with the Internal Revenue Service Center where you file your return. You must also give a copy to the company for which you perform the services.

Count the 30 days from the transfer date in the stock purchase agreement. The Form 15620 instructions explain that if the 30th day falls on a Saturday, Sunday or legal holiday, a filing postmarked by the next business day is treated as timely. Keep proof of mailing and a complete signed copy with your records.

What it means in practice

Example: A founder buys 4,000,000 shares at $0.0001 per share, paying $400, and the shares vest over four years. If the fair market value at purchase is also $0.0001 per share, an 83(b) election means the amount included in income is zero, because value and price are the same. Without the election, each vesting installment could be taxed at whatever the shares are worth on that date.

The election is not always right. If you pay less than fair market value, you include the difference now, and if you later forfeit the shares you do not get that tax back in the same way. Founders with unusual facts, such as stock issued for intellectual property or a valuation well above par, should get tax advice before the transfer date, not after.

Your next steps

1. Diary the 30th day after the transfer date on the day you sign.
2. File Form 15620 or a compliant written statement and send a copy to the company.
3. Keep proof of mailing and a signed copy with your equity records.