83(b) Elections For Dummies



First, a few basics:
• If you have stock options, you do not need to file an 83(b) Election Form.
• If you purchased/received founder’s stock and there are no restrictions, such as vesting, you do not need to file an 83(b) Election Form.
• If you purchased/received restricted stock in a growing startup, you should probably (about 99% of the time) file an 83(b) Election Form.


Here is why you want to file an 83(b) Election:
• If you think the value of your stock will increase, you will be forced to pay taxes on “phantom income” each year.


Let’s give an example to show the consequences of not filing an 83(b) election:
• You own 10% of the stock of your startup. It vests over 4 years, or 25% per year.
• You purchased this stock for $100 (fair market value) on January 1 of Year 1.
• During Year 1, the Company raised some outside financing that values the company at $10M.
• At the end of Year 1, the value of the Company is $10M and the value of your stock is worth $1M.
• You have about $250K in taxable income in Year 1 ( [value of Company at year-end, $10M less value of Company at beginning of year, $1K] * ownership percentage, 10% * vesting % in Year 1, 25%).
• You owe about $100K in Federal and State taxes.
• You will pick up additional taxable income in Year 2 through Year 4 if the value of the startup continues to increase.
• You do not get any tax relief if the value of the Company decreases.
• Remember, this “phantom income” is triggered just by the value of the Company increasing – not by exercising the options or selling the stock.


Here is how to file an 83(b) election:
• Copy and paste the 83(b) Election Form sample below and edit the fields that are highlighted in yellow.
• Copy and paste the IRS sample cover letter below and edit the fields that are highlighted in red.
• Enclose a self-addressed stamped envelope
• Mail it to the IRS address below within 30 days after the stock grant (there is no relief if you file late).
• Mail Certified Return Receipt Requested to prove timely delivery.
• Attach a copy of the 83(b) to your personal tax return in Year 1. (this means that you cannot e-file your return that year).
• If you live in a community property state, your spouse also needs to sign the 83(b) Election Form.
• Give a copy of the signed 83(b) Election Form to the Company.



Election Under Section 83(b) of the Internal Revenue Code


The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below:

1. Name and Address of Taxpayer:

Taxpayer SSN # :
2. Description of property with respect to which election is being made:


XXXXX shares of the common stock of XXXXXXX, (the “Company”) ($X.XXXX par value).
3. Date on which property was transferred is XXXXXXX.
4. The taxable year for which this election is being made is calendar year 20XX.
5. Nature of restrictions to which property is subject:


6. The fair market value at time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the property with respect to which this election is being made is $X.XX per share, for a total aggregate value of $XXX.XX.
7. The amount paid by the taxpayer for the property is $XXX.
8. A copy of this statement has been furnished to [Company name].
Dated: XXXXXX XX, 20XX












Name and Address of Taxpayer:
Taxpayer SSN # :
Dated: XXXXXX XX, 20XX
IRS Service Center Address From Below
Dear Sir or Madam:
Pursuant to Treasury Regulations Section 1.83-2(c) promulgated under Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”), enclosed please find a copy of an election under Section 83(b) of the Code.


Also, attached are a self-addressed stamped envelope and a signed copy of my 83(b) Election Form. Please date stamp the copy of the Election Form, enclose it in the attached envelope and mail it to me.
Thank you,
If you live in:


Alabama, Georgia, North Carolina, South Carolina, Kentucky, Tennessee, Missouri, New Jersey, Virginia, West Virginia, Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New York, Pennsylvania, Rhode Island, Vermont:

Department of the Treasury
Internal Revenue Service
Kansas City, MO 64999-0002

Florida, Louisiana, Mississippi, Texas:

Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0002

Alaska, Arizona, California, Colorado, Hawaii, Nevada, Oregon, Washington,Arkansas, Idaho, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Ohio, Oklahoma, South Dakota, Utah, Wisconsin, Wyoming:

Department of the Treasury
Internal Revenue Service
Fresno, CA 93888-0002

A foreign country, U.S. possession or territory* or use an APO or FPO address, or file Form 2555, 2555-EZ, or 4563, or are a dual-status alien:

Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0215

Accountalent’s tax preparation for startup companies

Offer for 1st Year Seed Stage Clients:

  •  Preparation and filing of the following tax return:
    • Federal Corporate Income Tax Return
    • State Corporate Income Tax Return
    • DE Secretary of State Franchise Tax Return
    • Secretary of State Annual Reports
    • Form 1099s (all versions, such as MISC, DIV, INT, etc)
  • QuickBooks setup
  • Financial Statement Preparation
  • Payroll setup
  • Consulting (up to 2 hours)
  • Unlimited emails and phone calls


  • $1,250 for the first year. $1,650 for second year. No 2-year commitment.
  • Additional Charges for Foreign filings:
    • $250 for each Form 5472 (25% Foreign Owner) and each FBAR ($10K in a foreign bank account)
    • $500 for each Form 5471 (foreign subsidiary)


Contact: Joe Faris, 978-621-0759, jfaris@accountalent.com

IRS Circular 230 Disclosure

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.

Related Posts

  • http://goodfinance-blog.com MistyCarlson27

    I propose not to hold back until you get enough cash to order all you need! You can just get the loan or just secured loan and feel yourself fine

  • http://smart-drugs.net/carnosine-eyedrops-testimonials.htm carnosine eye drops

    Under Section 83(a) of the Internal Revenue Code, a taxpayer who receives property in connection with the performance of services must generally recognize as ordinary income the difference between the value of the property and the amount paid in exchange therefor at the first time the property is either transferable or not subject to a substantial risk of forfeiture. Section 83(b) allows a taxpayer who receives property in connection with the performance of services that is subject to such restrictions (e.g., nonvested property) to elect to recognize this income at the time of transfer. The principal benefit of a Section 83(b) election is that the taxpayer can lock in appreciation which is generally taxable at capital gains rates upon later disposition.

  • http://www.anglofareast.com/research/silver-price/ silver price

    While speaking to a friend that is starting a company I realized that I haven’t written about filing an 83b Election. The election is a very important step in new company formation and if forgotten can have painful tax consequences.

  • http://smart-drugs.net/JamesSouth-piracetam.htm piracetam

    Under Section 83 of the Internal Revenue Code, the founder/employee would not recognize income (the difference between fair market value and the price paid) until the stock vests. However, if a founder/employee makes a voluntary Section 83(b) election, the founder/employee recognizes “income” upon the purchase of the stock.

  • http://smart-drugs.net/carnosine-eyedrops-testimonials.htm carnosine eye drops

    The strategy for minimizing overall taxes is driven primarily by the future expected and actual appreciation (or devaluation) of the property transferred. In general, if the property is of a type that is expected to increase materially in value in the future (e.g., equity interest in businesses or real estate), a Sec. 83(b) election should be considered. However, if the underlying property is of a type likely to decrease in value—e.g., vehicles and other personal property—deferring income recognition by not making a Sec. 83(b) election until any restrictions on the property lapse generally produces a more favorable result for the recipient.

  • http://www.anglofareast.com/research/silver-price/ silver price

    someone told me that the rules on 83b elections had changed, but I can’t find anything online to suggest that they are correct.

  • http://www.anglofareast.com/research/silver-price/ silver price

    Under § 83(b) an election can be made to recognize income currently upon the transfer of “restricted” property in connection with the performance of services. You can prepare a § 83(b) election by completing the form at the end of this document which follows some general rules regarding the election. Click on the Prepare Form button at the end of the form to submit it or on the Clear Entries button to start over.

  • http://www.anglofareast.com/bullion-accounts/gold-account/ gold account

    It is a common misconception, but a Section 83(b) election generally cannot be made with respect to the receipt of a private company stock option. You must exercise the option first and acquire the stock before you can make a Section 83(b) election, and you would only make a Section 83(b) election in that instance if you exercised the option and acquired unvested stock (if the stock acquired on exercise of the stock option was vested, there would be no reason to make a Section 83(b) election).

  • http://www.anglofareast.com/research/gold-price/ gold price

    someone told me that the rules on 83b elections had changed, but I can’t find anything online to suggest that they are correct.

  • http://portantoentretantotodavia.wordpress.com/2012/10/12/nossa-senhora-aparecida-a-mae-do-meu-senho Alden C. Copeland

    Why would someone choose to be taxed earlier instead of later? Because, as is often the case in early stage growth companies, the initial low purchase price for the shares may equal the actual market value of those shares at that time. When this is the case, making an 83(b) election creates no tax liability at the time of purchase and prevents tax liability arising when the restrictions lapse on the stock. This effectively defers the employee’s tax obligation until he sells the stock.

  • Blake Bunker

    What if unrestricted stock was purchased by a founder and held for one year or so and then a vesting agreement was added later to that stock?

    • http://accountalent.com/ Joe Faris

      If you signed a Restricted Stock Agreement when the vesting was introduced, you should have filed an 83(b) election. There is no guidance, though, from the IRS that I was able to locate on this specific issue.

  • Pierre-Marc Diennet

    Thank you so much. This was so helpful.

  • Horebb Glez


  • ashokraju7

    To clarify, this needs to be filed within 30 days of the day you buy the stocks. That is, within 30 days of the day you actually have the stocks in your possession. So for example, you may have been granted the stocks on July 1st, but if you only purchased the stocks on Dec 1st, you’d have to file the 83b) form within 30 days of Dec 1st (Dec 31st).

    I called my accountant to confirm this and you should too!

    • http://accountalent.com/ Joe Faris

      It should be 30 days from the grant.

  • shessi

    I did everything except the stamped letter part…I never got a response. Now what happens

    • Ramon Bocanegra

      There will be no response unless you provide the IRS with a copy of the 83(b) and a stamped, return envelope. Otherwise, you should have submitted via Certified Mail or using a courier service (UPS, FEDEX) and keep the receipt and your dated letter as evidence that you filed within the 30-day window.

      • Rob H

        I’ve done this twice and sent a stamped addressed return envelope both times, neither time did the IRS respond. I do have the certified letter return receipt though. I don’t think they respond if you send it with a return receipt. But that is just a guess.

    • http://accountalent.com/ Joe Faris

      If you sent the 83(b) election via Certified Mail RRR, that will become your receipt for timely filing.

  • celina lugo

    I worked for a startup in Los Angeles and they weren’t able to pay the few employees that were there. After not getting paid for 2 months last year, we were given stock and told that it was not in lieu of pay but was a bonus. We never signed anything for this stock. After still not getting paid, I quit to look for a new job and another co-worker quit a little while later. I’ve been working on getting a claim settled with the labor commission since. When I received my w-2 this year from the company, they listed the shares they gave me as wages earned which was $50k and I’m getting taxed on it. Do I need to fill out the form for this?

    • http://accountalent.com/ Joe Faris

      It is too late to file an 83(b) election, but it sounds like the stock that you received was not restricted stock but stock for payment of services.

  • Victoria

    If I forgot this step: Attach a copy of the 83(b) to your personal tax return in Year 1. (this means that you cannot e-file your return that year).

    Can I send it late? I filed the 83(b) election in 2013 and should’ve included the copy with my return this past April.

    • http://accountalent.com/ Joe Faris


      You probably should amend your 2013 return and include the 83(b) with the 2013 Amended return, assuming that you made a timely election (sent the IRS the 83(b) within 30 days of the stock grant).

      • Victoria

        I did! Thanks a lot – I’ll do that!