Incorporator The Journal of U.S. Formation
Start Free Quiz
Editorial 6 MIN READ

The 83(b) election: a 30-day window with no snooze button

Why founders pay ordinary income on a grant they haven't earned, and how to send the letter so the IRS actually receives it

The Editors
Staff, Incorporator.org
6 min read Updated
Contents 6 sections
  1. What the statute actually does
  2. What goes in the letter
  3. The 30-day deadline is the whole game
  4. Where the letter goes, and what changed in 2016
  5. The filing playbook
  6. Sources

Section 83(b) election is a one-page letter that turns a future tax problem into a tiny present one. You send it to the IRS within 30 days of receiving restricted stock, and in exchange you lock in ordinary income at today's fair market value instead of whatever the stock is worth when it vests.

Miss the 30 days and there is no extension, no late-filing relief, no private letter ruling that fixes it. The deadline is statutory, and the Treasury regulations that implement it have been read strictly for forty years.

What the statute actually does

Internal Revenue Code section 83 governs property transferred in connection with the performance of services. The default rule under section 83(a) is that the service provider recognizes ordinary income when the property becomes substantially vested, measured by the fair market value at that moment less any amount paid for the property. For a founder who bought restricted stock at $0.0001 per share, that default is a disaster: if the company is worth anything when the shares vest, the ordinary-income inclusion tracks the full appreciation.

Section 83(b) is the opt-out. The statute lets the taxpayer elect, within 30 days of the transfer, to recognize ordinary income at the grant-date fair market value, after which all future appreciation is taxed as capital gain when the stock is sold. For restricted stock granted at fair market value to a founder buying in at the formation price, the ordinary-income side of the transaction is effectively zero.

Treasury Regulation section 1.83-2 supplies the mechanics. Under 1.83-2(b), the election is filed with the IRS Service Center where the taxpayer files the associated return. Under 1.83-2(c), the 30-day clock runs from the date of transfer, not grant approval, board resolution, or certificate issuance. Under 1.83-2(d), the election is irrevocable absent IRS consent, which is granted only for mistake of fact, not regret.

There is a secondary reason the election matters for founders who expect to sell. Section 1202, the qualified small business stock provision, requires a five-year holding period from the date the stock is acquired. Without an 83(b), the IRS position is that unvested shares are not yet acquired for 1202 purposes; each tranche starts ticking at vesting. An 83(b) fixes the acquisition date as the grant date, starting the 1202 clock four years before a standard cliff-and-monthly schedule otherwise would.

What goes in the letter

Regulation 1.83-2(e) specifies the required contents. The election must state:

  • The name, address, and taxpayer identification number (usually SSN) of the person making the election.
  • A description of the property with respect to which the election is being made, which in practice means the number and class of shares and the issuer's name.
  • The date on which the property was transferred and the taxable year for which the election is being made.
  • The nature of the restriction or restrictions to which the property is subject, which for standard founder stock is the unvested-share repurchase right on separation.
  • The fair market value at the time of transfer, determined without regard to any restriction other than one that by its terms will never lapse.
  • The amount, if any, paid for the property.
  • A statement that copies have been furnished to other persons as required by the regulation, which means the company that issued the stock.

The amount included in income is the spread between the fair market value and the consideration paid. For founders buying at formation, the spread is typically zero or a few dollars, and the election produces no current tax at all. For employees receiving restricted stock with a real strike-to-FMV delta, the election crystallizes a real liability, and the math is worth running before filing.

Rev. Proc. 2012-29, 2012-28 I.R.B. 49, published a sample 83(b) election form that satisfies the regulatory requirements. Copying it verbatim and filling in the blanks is the safe path. In January 2024 the IRS released Form 15620, a standardized 83(b) election form that is now the official template. Using Form 15620 avoids arguments about whether the letter covered each regulatory data point.

The 30-day deadline is the whole game

The regulation is specific: the election must be filed "not later than 30 days after the date of transfer." The Tax Court and the IRS have consistently refused to extend this. There is no reasonable-cause relief. There is no 9100 regulatory extension under Treas. Reg. section 301.9100-3, because 83(b) is a statutory rather than regulatory deadline and the 9100 regime does not reach it.

Day one is the day after transfer. If shares are transferred on Tuesday October 1, the election must be filed by Thursday October 31. If the 30th day falls on a Saturday, Sunday, or federal holiday, IRC section 7503 extends the deadline to the next business day, but only barely; do not rely on it.

IRC section 7502, the timely-mailed-is-timely-filed rule, makes the deadline livable. A document sent by U.S. mail is treated as filed on the postmark date if it was deposited with proper postage and correctly addressed. Certified mail with return receipt requested is standard practice: the certified-mail receipt is statutory proof of the postmark date under section 7502(c)(1). Private delivery services designated by the IRS under section 7502(f), including FedEx Priority Overnight and UPS Next Day Air, also qualify, proved by PDS tracking rather than postmark.

Keep the certified-mail receipt, the green card, and a dated copy of the cover letter. If the IRS later claims the election was not received, the green card is the only defense.

Where the letter goes, and what changed in 2016

The election goes to the IRS Service Center where the taxpayer files the federal return for the year of transfer. Service Center addresses rotate and depend on the taxpayer's state and whether a payment accompanies the return. Use the current Form 1040 instructions, not a prior year's list.

A copy also goes to the company that issued the stock. The company keeps it in the cap-table records, and for employees the inclusion amount generally flows through payroll reporting.

Before 2016, the regulations required the taxpayer to attach a copy of the 83(b) election to the federal return for the year of transfer. T.D. 9779, published in the Federal Register on July 26, 2016, eliminated that attach-to-return requirement for elections made on or after January 1, 2015. The election itself still has to reach the Service Center within 30 days; only the follow-on return paperwork changed.

Rev. Proc. 2020-29, issued during the pandemic, permitted the IRS to accept electronic or digital signatures on 83(b) elections. That accommodation has been extended through subsequent IRS guidance, and Form 15620 reflects it. A DocuSigned 83(b) mailed certified is acceptable in 2024.

The filing playbook

A workable sequence for a founder with stock granted this week: pull Form 15620 from irs.gov. Fill in SSN, address, grant date, property description (number of shares, class, issuer), vesting restriction, FMV at grant (supported by a contemporaneous 409A or board-adopted valuation), consideration paid, and resulting income inclusion. Sign and date. Make three copies. Mail the original certified, return receipt requested, to the Service Center listed in the current Form 1040 instructions for the taxpayer's state. Deliver one copy to the company's equity administrator. Keep the last copy with the certified-mail receipt and the returned green card, findable in five years when the 1202 analysis needs the acquisition date confirmed.

A nonresident alien receiving U.S. restricted stock can make an 83(b); the mechanics are identical, but the Service Center and the identifying number (ITIN rather than SSN) differ, and a cross-border tax adviser should review before filing.

The rule of thumb: if the spread between FMV and purchase price is small and the company might appreciate, file the 83(b) within 30 days and keep the green card.

Sources

Keep reading

More from the journal.