First, a few basics:

• If you have stock options, you do not need to file an 83(b) Election Form, unless you exercised the option early.
• 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 NOT 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:

• Download the Sample 83(b) Election Form and Letter below.
• Sign the 83(b) Election Form and letter and follow the instructions in the letter.
• Mail the letter and 83(b) Election Form to the IRS address (see dropdown below for address) within 30 days after the stock grant (there is no relief if you file late).
• Mail Certified Return Receipt Requested to prove timely delivery.
• 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.

Enclosures

WHERE TO MAIL THE LETTER AND 83(b) ELECTION FORM TO:

Before mailing, check the IRS instructions for Form 1040 and/or consult your tax advisor to ensure the addresses below are still valid as the IRS occasionally changes mailing addresses.

If you live in…	Mail to:
Alabama, Arkansas, Connecticut, Delaware, District of Columbia, Georgia, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Missouri, New Hampshire, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia, Wisconsin	Department of the Treasury Internal Revenue Service Kansas City, MO 64999-0002
Arizona, Florida, Louisiana, Mississippi, New Mexico, Texas	Department of the Treasury Internal Revenue Service Austin, TX 73301-0002
Alaska, California, Colorado, Hawaii, Idaho, Kansas, Michigan, Montana, Nebraska, Nevada, North Dakota, Ohio, Oregon, South Dakota, Utah, Washington, Wyoming	Department of the Treasury Internal Revenue Service Ogden, UT 84201-0002
A foreign country, U.S. possession or territory,* or use an APO or FPO address, or file Form 2555 or 4563, or are a dual-status alien.	Department of the Treasury Internal Revenue Service Austin, TX 73301-0215
*If you live in American Samoa, Puerto Rico, Guam, the U.S. Virgin Islands, or the Northern Mariana Islands, see Pub 570.

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.