83(b) Election: Deadline, Tax Effect, and When to File

An 83(b) election is a written statement you file with the IRS within 30 days of receiving restricted property, telling the government you want to pay ordinary income tax now on the property’s current value instead of waiting until it vests. The point is to lock in a low tax bill today so that future appreciation is taxed later as capital gain rather than as compensation. It is most useful for early-stage startup shares and similar property where today’s value is small and tomorrow’s could be large.

When You Can File One

The election exists because of Section 83 of the Internal Revenue Code, which governs property you receive in exchange for services. If that property is still subject to a “substantial risk of forfeiture” — meaning you could lose it if you leave early or miss a condition — the default rule is that you owe no tax until the risk disappears. The 83(b) election overrides that default.¹

The textbook case is restricted stock. You receive shares immediately but they vest over several years, and if you leave the company early the employer can take back the unvested portion. Performance-based grants qualify too, such as founder shares contingent on hitting revenue targets.² Partnership profits interests are another common candidate. Even when a profits interest has little or no current value, recipients often file a protective 83(b) election at a $0 fair market value to eliminate uncertainty, though IRS guidance under Revenue Procedure 2001-43 suggests the election is not strictly required for interests that meet certain safe-harbor conditions.

What the Election Does Not Cover

Several things look like they should qualify but do not:

Ordinary compensatory stock options without a readily ascertainable fair market value. You cannot file an 83(b) election at grant. The election only becomes relevant if you early-exercise the option and receive shares that are themselves subject to vesting.
Incentive stock options. ISO exercises are governed by Section 421 and are specifically excluded from Section 83.
Transfers into or out of a qualified retirement plan under Section 401(a).
Group-term life insurance taxed under Section 79.

The stock option exclusion is the most frequent source of confusion. If your company just granted you options, there is nothing to elect on yet.³

Filing Requirements and the 30-Day Deadline

The statement must reach the IRS no later than 30 days after the transfer date. This deadline is statutory. There is no extension, no late-filing option, and no good-faith relief for a statement that arrives on day 31. If you miss it, you are stuck with the default treatment under Section 83(a) for the life of that property.

One narrow accommodation: if day 30 falls on a Saturday, Sunday, or legal holiday, you have until the next business day under IRC Section 7503.⁴ You are also allowed to file before the transfer actually occurs if you know it is coming.⁵

What the Statement Must Say

Treasury Regulation 1.83-2(e) prescribes the required contents. The statement must be signed, must say that it is being made under Section 83(b), and must include seven pieces of information:⁵

Your name, address, and taxpayer identification number.
A description of the property, such as 10,000 shares of common stock or a 5% profits interest in a partnership.
The transfer date and the taxable year for which you are making the election.
The nature of the vesting conditions or other restrictions creating the forfeiture risk.
The fair market value of the property on the transfer date, disregarding restrictions that will eventually lapse.
The amount, if any, you paid for the property.
A statement confirming you provided copies to the service recipient.

The IRS released Form 15620 as a standardized template, but using it is voluntary. The form’s own instructions confirm you may instead file a written statement that satisfies Treasury Regulation 1.83-2.⁴ The form has the advantage of walking you through each required item. A custom statement works just as well as long as you check it against the regulation before mailing.

Where to Send It and Who Gets Copies

Mail the original signed statement to the IRS service center where you file your federal income tax return.⁴ You also give a copy to the person or company for which you performed the services, typically your employer. In the uncommon case where the service provider and the property recipient are different people, the recipient gets a copy too.⁵

You no longer attach the election to your federal income tax return. That requirement was eliminated by Treasury Decision 9779 for property transferred on or after January 1, 2016.⁶

Use certified or registered mail, and keep the receipt. Under IRC Section 7502, the postmark date on properly mailed items is treated as the filing date, and registered mail serves as prima facie evidence of delivery.⁷ If the IRS ever questions whether you filed on time, that receipt is your only defense. Store it permanently.

How the Tax Math Changes

With a valid election, you recognize ordinary income on the transfer date equal to the property’s fair market value minus whatever you paid.¹ That income is treated as compensation and is subject to income and employment tax withholding in the year of transfer. From that point on, future appreciation is capital gain, not compensation. Your basis equals what you paid plus the amount included in income, and your capital gains holding period starts on the transfer date.⁸

Without the election, Section 83(a) controls. You owe nothing at transfer. Each time a tranche vests, you recognize ordinary compensation income equal to the fair market value on that vesting date, minus any amount paid. If the property has appreciated during vesting, those numbers can be large, and all of it is taxed at ordinary rates. Your capital gains holding period on each tranche does not start until that tranche vests.

A Side-by-Side Example

Suppose you receive 10,000 restricted shares at $0.01 per share when the fair market value is $1.00. The shares vest four years later, at which point the stock is worth $10.00, and you sell immediately.

With the 83(b) election, you include $9,900 in ordinary income in year one (10,000 shares at $1.00, minus the $100 you paid). Four years later, you sell for $100,000. Your basis is $10,000, so the $90,000 gain is long-term capital gain because your holding period started at transfer.

Without the election, you owe nothing in year one. At vesting, you recognize $99,900 in ordinary income (10,000 shares at $10.00, minus the $100 you paid). You sell immediately, so there is no further gain, but the full $99,900 is ordinary compensation. With long-term capital gains rates topping out at 20% (plus the 3.8% net investment income tax for high earners) versus ordinary rates up to 37%, the election produces meaningful savings on property that appreciates.

Why the Election Is a One-Way Door

Once filed, the election is essentially irrevocable. The regulation permits revocation only with the Commissioner’s consent, and consent is granted only for a mistake of fact about the underlying transaction, requested within 60 days of discovering the mistake. A decline in the property’s value does not count. A later decision that filing was unwise does not count. Leaving the company and forfeiting the shares does not count.⁵

Forfeiture is the painful scenario. If you file the election, pay tax on the included income, and then leave before vesting, the statute does not allow you to deduct the income you already reported.¹ Your only recovery is a loss equal to whatever you actually paid for the property, minus anything you received back on forfeiture. For an employee who paid pennies per share, that loss is negligible.⁸

When Filing Actually Makes Sense

The election works best when three things are true at the same time: the spread between fair market value and what you paid is small today, you have real reason to believe the property will appreciate, and you expect to stay through vesting. Early-stage startup stock with a low 409A valuation is the archetype. The tax bill today is tiny, and the upside after four years can be enormous.

The gamble gets worse as the current value rises. Filing on property that already has significant worth means writing a real check for tax on income you might never actually keep, with no deduction available if you later walk away. If any of the three conditions above is shaky, the default treatment under Section 83(a) is often the safer answer.

1
Office of the Law Revision Counsel. 26 U.S. Code 83 – Property Transferred in Connection With Performance of Services
2
Internal Revenue Service. Revenue Ruling 2005-48
3
Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection With Performance of Services
4
Internal Revenue Service. Form 15620 – Section 83(b) Election
5
eCFR. 26 CFR 1.83-2 – Election to Include in Gross Income in Year of Transfer
6
U.S. Government Publishing Office. Treasury Decision 9779 – Removal of Tax Return Requirement for Section 83(b) Elections
7
Office of the Law Revision Counsel. 26 U.S. Code 7502 – Timely Mailing Treated as Timely Filing and Paying
8
eCFR. 26 CFR 1.83-2 – Election to Include in Gross Income in Year of Transfer