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Frequently Asked Questions about Section 83(b) Elections

1. 1. What is a Section 83(b) election?

   Section 83(b) of the Internal Revenue Code allows founders, employees, and other service providers (including contractors) to accelerate the time for determining taxable income on restricted stock awards or purchases subject to vesting. A Section 83(b) election is made by sending a formal legal instrument to the IRS requesting to be taxed on the date the restricted stock was granted or purchased rather than on the scheduled vesting dates.

   The election is authorized by 26 U.S.C. § 83(b) and governed by 26 C.F.R. § 1.83-2. It must be filed with the IRS within 30 days after the grant or purchase date of the restricted stock. The last possible day for filing is calculated by counting every calendar day (including weekends and holidays) starting with the day after the grant date.

   Section 83(b) elections are relevant only for stock (in the case of a corporation) or membership units (in the case of an LLC) subject to vesting, as fully vested stock or membership units are taxed at the time of the grant.

2. 2. What are the benefits of filing a Section 83(b) election?

   Filing a Section 83(b) election accelerates the determination of taxable income to the grant date. If the restricted stock is purchased for an amount equal to its fair market value at grant, the election results in no recognition of income at that time.

   The election also advances the beginning of the one-year long-term capital gain holding period, often resulting in preferential capital gain rather than ordinary income tax treatment upon sale (long-term capital gain tax rates are 0%, 15%, and 20% for most taxpayers, compared to ordinary income tax rates as high as 37%).

   Filing an 83(b) election also prevents a potentially large tax bill at each vesting date when the stock may have appreciated and you may not have cash to pay the tax. It may also commence the five-year holding period for qualified small business stock (QSBS) exclusion under 26 U.S.C. § 1202, if applicable.

3. 3. What happens if I do not file a Section 83(b) election?

   If a Section 83(b) election is not filed, you will pay taxes on restricted stock at each vesting date. Your tax will be assessed at ordinary income rates on the amount by which the stock's value on the vesting date exceeds the purchase price, if any. Ask your CPA for more information.

   This can result in a substantial tax obligation if the value of the shares has increased between the grant date and the vesting date. It can also create a cash-flow crisis: you may owe tax on shares you cannot yet sell (so-called phantom income). Your long-term capital gains holding period will not begin until each respective vesting date, potentially resulting in a higher effective tax rate when you sell.

4. 4. What are the risks of filing a Section 83(b) election?

   Making a Section 83(b) election accelerates the date that taxable income is recognized from the vesting date to the grant date. If you make the election, pay taxes on income based on the fair market value of the shares at grant, and then later forfeit your shares (for example, by leaving the company before vesting), you will have paid tax on income you never realized. This is a serious consideration that should be discussed with your existing tax professional before making a decision whether to file an election.

   In such a scenario, you cannot recover the taxes paid. There is no refund mechanism for taxes paid on forfeited 83(b) stock. This is the principal risk: you may pay tax now on stock that becomes worthless or is forfeited before vesting.

5. 5. What is the 30-day filing deadline?

   Under 26 C.F.R. § 1.83-2(b), a Section 83(b) election must be filed with the IRS no later than 30 days after the date of the property transfer (the grant date). The 30-day period is calculated by counting every calendar day, including weekends and holidays, starting the day after the grant date.

   The grant date is the date the Board of Directors approves the grant, even if you do not receive the restricted stock paperwork until later. This is a common source of confusion and missed deadlines.

   This deadline is absolute. There are no extensions, no exceptions, and no retroactive filings. If you miss it, the election cannot be made, and you will be taxed at ordinary income rates at each vesting date. You should file your 83(b) election as soon as possible after discussing the matter with your existing tax professional.

6. 6. Who is eligible to file a Section 83(b) election?

   Any individual who receives or purchases property (typically restricted stock) in connection with the performance of services may file a Section 83(b) election, provided the property is subject to a substantial risk of forfeiture (i.e., subject to vesting). This includes founders, employees, directors, advisors, and independent contractors who receive restricted stock from a corporation.

   The election is available only for property transferred by a corporation, LLC, or partnership, and different rules may apply to profits interests and capital interests in those entities.

7. 7. Can founders of LLCs or partnerships file a Section 83(b) election?

   LLCs and partnerships do not issue shares of stock. They issue membership interests, units, or partnership interests. If you have been told that you received "shares" or "stock" in an LLC or partnership, you should consult with a tax attorney, as the characterization of your interest may be incorrect and may have tax consequences.

   Profits interests in an LLC or partnership may be subject to Section 83(b) if they have value at the time of grant under Rev. Proc. 93-27, 1993-2 C.B. 343, and Rev. Proc. 2001-43, 2001-2 C.B. 191. However, a protective 83(b) election may be advisable in certain cases. Consult with a tax attorney before proceeding and without delay.

8. 8. How much does the 83(b) election filing service cost?

   Our flat-fee is $495. This covers the preparation and filing of the Section 83(b) election with the IRS by a licensed CPA—electronically and securely. The fee also includes a duplicate copy for your employer and a letter of instruction for your tax preparer.

   There are no hidden charges and no hourly billing. What you see is what you pay.

9. 9. What is included in the $495 flat-fee?

   • Preparation and filing of one Section 83(b) election with the federal IRS
   • Preparation and delivery of a duplicate copy for you to provide to your employer as required by law
   • Election sent to the IRS securely and electronically
   • Letter of instruction prepared by our CPA to provide to your tax preparer
   • All documents prepared and filed by a licensed, experienced CPA (not an assistant or paralegal)

10. 10. What is not included in the flat-fee?

    • Advice on whether to file an 83(b) election— this is something you should first discuss with your existing tax team or a tax attorney
    • Review of any materials or documents—we take the information you supply to use at face value and prepare and execute the filing
    • Additional or ongoing tax filings, tax preparation, or tax audit assistance
    • Restricted share valuation (if required)
    • Other legal, tax, or accounting work not identified above

    Additional services may be available at additional charge by separate engagement.

11. 11. How does the filing process work?

    Begin by entering your employer name above and clicking "Get Started and File Now." Complete the online intake workflow (under five minutes), providing the required information. Submit secure payment at the conclusion of the workflow.

    Upon receipt, our CPA will prepare the Section 83(b) election form and file with the IRS. We also prepare a duplicate copy for you to deliver to your employer and a letter of instruction for your tax preparer.

12. 12. Do I need to print or sign anything? How do I pay?

    In most cases, there is no need to print or sign any documents by hand. Our firm uses Docusign to obtain electronic signatures when necessary in compliance with the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. § 7001. You review and sign from any device, anywhere in the world, with an internet connection.

    All payments are submitted at the conclusion of the online intake process using secure, encrypted payment processing via our payment processor, Stripe. We accept credit cards, debit cards, Apple Pay, Google Pay, and Amazon Pay. Full payment is due at the time of submission; we do not offer invoicing or payment plans.

13. 13. Is a Section 83(b) election reversible?

    No. In all but the most extraordinary cases, a Section 83(b) election is permanent and irrevocable per 26 C.F.R. § 1.83-2(f). It cannot be rescinded, revoked, or changed after the 30-day filing window has closed. You should consult with your tax attorney before deciding whether to make the election or hiring our service.

14. 14. What are the federal income tax implications?

    Different tax rates apply under the Internal Revenue Code. As of this writing, the maximum ordinary income tax rate is 37%, whereas the maximum long-term capital gains rate is 20%. The goal of the 83(b) election is to recognize a small amount of ordinary income at grant (when the stock is worth little) and to convert future appreciation into long-term capital gain (taxed at a lower rate) rather than ordinary income (taxed at a higher rate).

    If you paid nothing for your restricted stock or membership units, you will be taxed on its fair market value at grant (if a Section 83(b) election is filed) or at vesting (if no election is filed), in each case at the applicable ordinary income tax rate. When you later sell the stock, assuming it has been held more than one year from the applicable measurement date, the gain will be taxed at the long-term capital gains rate, potentially resulting in significant tax savings.

15. 15. Do I need to attach the election to my state tax return?

    Applicable state law may require that you attach a copy of the completed election form to your state personal income tax return(s) for the year. Consult your attorney or tax preparer to determine whether a copy of this Section 83(b) election should be filed with your state return(s). Regardless, your tax professional is responsible for preparing and filing your tax returns.

16. 16. Is it the employer's responsibility to file the 83(b) election?

    No. It is the employee's responsibility to file the 83(b) election with the IRS. The employer will not file it for you. In most cases, the corporation's attorneys represent the corporation, not individual employees, and may be prohibited from advising you on whether to file.

    You are required to deliver a copy of the filed election to your employer per 26 C.F.R. § 1.83-2(c), but the obligation to prepare and file the election (or to hire someone to do so on your behalf) is yours.

17. 17. Why should I hire a CPA to file this?

    CPAs are subject to strict rules of professional conduct and can be held accountable through fiduciary laws. The value of a successful 83(b) election may be measured in six or even seven figures. The cost of hiring a professional to prepare and file this instrument far outweighs the risk of handling it yourself, unless you are an experienced tax attorney or CPA.

18. 18. What scenarios make the election more or less advantageous?

    Section 83(b) election is more advantageous when:

    • The amount of income reported at grant is small
    • The stock's growth prospects are moderate to strong
    • The risk of stock forfeiture is low

    Section 83(b) election is less advantageous when:

    • The amount of income reported at grant is large
    • The stock's growth prospects are low to moderate
    • The risk of stock forfeiture is moderate to high

19. 19. Can you provide numerical examples?

    Assume you receive 500,000 shares subject to vesting, worth $0.01 per share at the time of grant, $2.00 per share at the time of vesting, and $10.00 per share when sold more than one year later. Assume you are subject to the maximum ordinary income tax rate (37%) and long-term capital gains rate (20%). Employment tax and state tax consequences are excluded for simplicity but may be significant; ask your existing tax advisor.

    Example 1: With 83(b) Election. You (or your CPA) timely file a Section 83(b) election within 30 days of the grant, when your shares are worth $5,000. You pay ordinary income tax of $1,850 (i.e., $5,000 x 37%). Because you filed the election, you owe no tax when the stock vests. When the stock is sold (more than one year after the date of grant) you recognize a taxable gain of $9.99 per share and pay additional tax of $999,000 (i.e., $4,995,000 x 20%). Your economic gain after tax: $3,999,150.

    Example 2: Without 83(b) Election. You do not file a Section 83(b) election. You pay no tax at grant, but instead recognize income of $1,000,000 when the shares vest and owe ordinary income tax of $370,000 at that time. That could be a serious problem if you do not have cash on hand at vesting. On the sale (more than one year after vesting) you recognize a taxable gain of $8.00 per share and pay additional tax of $800,000 (i.e., $4,000,000 x 20%). Your economic gain after tax: $3,830,000.

    In these examples, filing a Section 83(b) election would have saved $169,150. Speak with your existing tax professional before filing any election.

20. 20. What is qualified small business stock and how does it relate to 83(b)?

    Under 26 U.S.C. § 1202, a taxpayer may exclude from federal income tax up to 100% of the gain from the sale of qualified small business stock (QSBS) held for more than five years, subject to certain limitations. The five-year holding period begins on the date the stock is acquired.

    Filing a Section 83(b) election can start the QSBS holding period at the grant date rather than the vesting date, enabling you to reach the five-year threshold sooner. This is an additional benefit of the 83(b) election that is often overlooked.

Common Misconceptions about Section 83(b) Elections

1. 1. "My employer will file the 83(b) election for me."

   Verdict: False. The obligation to file a Section 83(b) election rests with the employee or grantee, not the employer. The employer is required to be notified and provided a copy of the filed election per 26 C.F.R. § 1.83-2(c), but it has no obligation to prepare, file, or even remind you about the election.

   In most cases, the corporation's attorneys represent the corporation as a whole, not individual employees. This means the corporation's attorneys are prohibited from advising you on whether to file the election. It is also common for human resources departments to be unaware of the 83(b) election process or to incorrectly assume the election will be "handled" during onboarding. Do not rely on your employer. Retain your own counsel before making a decision.

2. 2. "I have plenty of time to decide whether to file."

   Verdict: False. The election must be postmarked within 30 calendar days (not business days) of the grant date per 26 C.F.R. § 1.83-2(b). The grant date is the date the Board of Directors approves the grant, even if you do not receive the paperwork until later. In practice, the effective window is often far shorter than 30 days.

   Because the election must be submitted to the IRS, you must allow time for preparation and filing. You should file as soon as possible and not later than 48 hours before the 30-day deadline. Missing this deadline by even one day is fatal and cannot be corrected.

3. 3. "LegalZoom, Stripe Atlas, or my financial advisor can advise me on this election."

   Verdict: False. LegalZoom®, Rocket Lawyer®, Stripe Atlas®, financial advisors, and wealth managers are not law firms or CPAs and are prohibited by law from giving legal advice. Only CPAs and attorneys are permitted to give advice on the federal Internal Revenue Code, and the unauthorized practice of law is a felony in many jurisdictions.

4. 4. "The election is reversible if circumstances change."

   Verdict: False. Per 26 C.F.R. § 1.83-2(f), a Section 83(b) election may be revoked only with the consent of the Commissioner of Internal Revenue, and such consent is granted only in very rare cases. In practice, the election is permanent. If you file the election, pay taxes, and then forfeit your shares, you cannot recover the taxes paid.

   This is why it is critical to consult with your tax attorney before deciding to make the election. The decision must be informed by the specific facts of your grant, your risk tolerance, and your financial circumstances.

5. 5. "LLCs and partnerships can issue stock."

   Verdict: False. Only corporations issue shares of stock. LLCs issue membership interests or units; partnerships issue partnership interests.

   Different rules apply to profits interests and capital interests in LLCs and partnerships. These are governed by different IRS Revenue Procedures and Treasury Regulations. Do not assume that the 83(b) framework applies to your LLC or partnership interest without first consulting your tax attorney.

6. 6. "All employees should always file a Section 83(b) election."

   Verdict: Mostly false. While there are possible, significant benefits to making this election, there are also risks which must be evaluated on a case-by-case basis. There is no one-size-fits-all approach. If you receive restricted stock worth a significant amount, filing the election could cause you to incur a large tax liability immediately. If the company fails or you forfeit your unvested shares, you will have paid tax on income you never realized and cannot recover.

   The decision depends on the fair market value of the stock at grant, the growth prospects of the company, your risk of forfeiture, your cash-flow situation, and your personal tax circumstances. Consult with a licensed attorney and CPA before making this decision.