What is an 83(b) Election?
An 83(b) Election Form is a written statement to the IRS telling them that you have been granted Restricted Stock from a Company where you will be providing services (employment, consulting, etc.). There is no official IRS form – it is just a written statement that contains information about the stock grant.
The purpose of the 83(b) Election Form is to inform the IRS that you want to report the difference between the amount that you paid for the stock and the fair market value of the stock (at the grant date) as taxable income on your personal income tax return. So, if you just incorporated, the value of the stock is very little – typically the par value of the stock.
Here is an example – you are a co-founder of a newly incorporated startup and you and your co-founders are each granted 1M shares of common stock, par value $0.0001 in 2016. You each pay $100 for your stock, which represents fair market value, as the Company just incorporated. The stock vests over a few years (the vesting makes it “restricted” stock).
So, the 83(b) Election Form informs the IRS that you received the 1M shares of Common Stock and the fair market value was $100 and you paid $100 for the stock. Thus, you are telling the IRS that you will report $0 ($100 minus $100) as taxable income when you file your 2016 personal income tax return.
The 83(b) Election Form must be mailed (cannot be e-filed) to the IRS within 30 days of the stock grant date. There is no relief if you miss the 30-day deadline and there is no extension available.