Tax Code Section 83: The 83(b) Election, Filing, and Risks

A Section 83(b) election is a written notice to the IRS that you want to pay income tax on restricted property, such as founder stock or an LLC interest received for services, at the moment it is transferred to you rather than waiting until it vests. You file it within 30 days of the transfer. When the property later appreciates, the growth is taxed as capital gain instead of ordinary income, which is why the election is a standard move for startup founders and early employees who receive stock at a very low valuation.

The Default Rule You’re Opting Out Of

Section 83 of the Internal Revenue Code governs property received as compensation for services. Under Section 83(a), you don’t owe income tax when restricted property is transferred to you. The tax hits later, when your rights in the property are no longer subject to a “substantial risk of forfeiture” and become transferable, whichever comes first.¹ A substantial risk of forfeiture usually means you have to keep working for the company, or hit some performance target, to keep the property. Quit or get fired first, and you lose it.

The taxable amount at vesting is the fair market value of the property on the vesting date, minus whatever you paid for it. That spread is ordinary income, taxed at rates that reach 37% at the federal level for 2026.² If you receive shares worth $1 each at grant and they’re worth $50 each when they vest four years later, you owe ordinary income tax on $49 per share. The faster the company grows, the worse the bill.

Section 83 treats both tangible and intangible assets as “property,” but excludes cash and unfunded promises to pay deferred compensation.³ In practice, the assets that trigger the 83(b) decision are restricted stock grants and LLC membership interests.

Why the Election Saves Tax

Filing an 83(b) election tells the IRS to tax you now, on the property’s value at transfer, rather than later at vesting. You report the difference between what you paid and the fair market value on the grant date as ordinary income for that year.¹ If you bought founder shares for $0.001 each when the fair market value was $0.10, you report ordinary income of $0.099 per share. On a large grant, that might come to a few hundred dollars.

The payoff comes on the back end. Because you already paid ordinary income tax at the grant date, every dollar of future appreciation is a capital gain when you sell. Hold the property for more than a year from the transfer date and the gain qualifies for long-term capital gains rates, which top out at 20% for most taxpayers. Your capital-gains holding period starts on the transfer date, not the vesting date.¹ The election is a bet that the property will appreciate significantly, and that a small ordinary-income tax now beats a large one later.

What the Election Must Include

The IRS now offers a standardized Form 15620 for the election, but a freeform written statement still works.⁴ Either version must contain the information required by Treasury Regulation 1.83-2(e):⁵

Your full legal name, current address, and taxpayer identification number.
A description of the property: number of shares, class of stock, or the percentage of the partnership or LLC interest.
The transfer date and the tax year the election covers.
The nature of the restrictions, such as a four-year vesting schedule tied to continued employment.
The fair market value of the property at the transfer date, ignoring any restrictions that will lapse. Companies typically establish this through a 409A valuation or a board resolution.
The amount you paid for the property, even if it was zero.
A statement confirming that you have provided copies to the required parties.

You must sign the statement. Form 15620 includes the signature line and a declaration under penalties of perjury.⁶ The difference between the fair market value you list and the amount you paid is the ordinary income you’ll report on that year’s tax return.

How and Where to File

You have 30 days from the date the property is transferred to file. If day 30 falls on a weekend or federal holiday, the deadline moves to the next business day. Otherwise the deadline is absolute. There is no extension, and no reasonable-cause exception exists for missing it.⁶ A late filing is invalid, and you’re stuck with tax at vesting.

Mail the signed form or written statement to the IRS office where you file your federal income tax return. There is no electronic filing option. Use a trackable method such as USPS Certified Mail with Return Receipt Requested, so you have proof of a timely postmark. The IRS treats the election as timely filed based on the postmark date, not the receipt date.

Send a copy to the company (or person) you performed services for. That lets them adjust their own tax reporting. You no longer need to attach a copy of the election to your annual return, but keep the certified mail receipt and a copy of the statement for at least three years from the return’s due date. Getting a copy back from the IRS later is difficult, sometimes impossible.

Risks Before You File

The election is a bet. When the property appreciates, the savings can be large. When it doesn’t, the consequences are painful and effectively permanent.

You Can’t Take It Back

Once filed, the election cannot be revoked without the consent of the IRS Commissioner. Consent is granted only for a genuine mistake of fact about the underlying transaction, and only if you request revocation within 60 days of discovering the mistake. A drop in the property’s value is not a mistake of fact. Neither is your failure to meet a vesting condition you expected to satisfy.⁵ Revocations almost never happen.

Forfeiture After You Elect

If you make the election and later forfeit the property, by leaving before vesting for example, Section 83 is explicit: no deduction is allowed for the forfeiture.¹ You already paid ordinary income tax on the spread at grant, and you don’t get it back. Your capital loss is limited to what you actually paid out of pocket. For a startup employee who paid a fraction of a penny per share, that loss is effectively zero. You paid real tax dollars on income you never received.

When the Property Loses Value

Even without a forfeiture, a decline in value creates a smaller version of the same problem. Say you elected on shares valued at $2 each and later sell for $0.50. You have a capital loss on the drop, but the ordinary income tax you paid on the $2 valuation is gone. Capital losses can offset capital gains and, under the standard rules, up to $3,000 of ordinary income per year. That’s the ceiling on getting anything back.

What Section 83 Doesn’t Cover

Some compensatory transfers sit outside Section 83 entirely. The statute excludes incentive stock options (ISOs) governed by Section 421, transfers to or from qualified retirement plans, options that don’t have a readily ascertainable fair market value at grant, and group-term life insurance under Section 79.⁷ If you hold ISOs rather than restricted stock, the 83(b) election is not available to you and different rules apply.

Profits interests in partnerships and LLCs sit in their own lane. A profits interest gives you a share of future profits and appreciation but no claim on existing assets. Under Revenue Procedure 93-27, as clarified by Revenue Procedure 2001-43, receiving a profits interest for services is generally not a taxable event, provided the interest doesn’t relate to a substantially certain and predictable income stream, you hold it for at least two years before disposing of it, and the partnership isn’t publicly traded.⁸ Because the interest has a fair market value of zero at issuance, filing an 83(b) election on it is common practice: it locks in the zero-value position and heads off any later dispute.

The Section 83(i) Alternative for Some Private-Company Employees

Section 83(i), added by the Tax Cuts and Jobs Act, offers a third timing option for eligible employees of qualifying private companies. Instead of paying tax at vesting or electing to pay at transfer, you can defer the resulting income for up to five years from the date the stock first vests.¹ The deferral ends earlier if the stock becomes publicly traded, if you leave the company, or if you revoke the election.

Not everyone qualifies. The corporation must be private, with no stock traded on an established market, and must maintain a written plan granting stock options or restricted stock units to at least 80% of its U.S. employees on the same terms.¹ Certain people are excluded outright: anyone who has been a 1% owner during the current or preceding 10 calendar years, the CEO, the CFO, and the four highest-compensated officers during that same lookback period. The 83(i) election must be filed within 30 days of vesting, the same window that applies to an 83(b) election at grant.

1
Office of the Law Revision Counsel. 26 USC 83 – Property Transferred in Connection With Performance of Services
2
Internal Revenue Service. Federal Income Tax Rates and Brackets
3
eCFR. 26 CFR 1.83-3 – Meaning and Use of Certain Terms
4
Internal Revenue Service. Update to the 2024 Publication 525 for Section 83(b) Election
5
eCFR. 26 CFR 1.83-2 – Election to Include in Gross Income in Year of Transfer
6
Internal Revenue Service. Form 15620 – Section 83(b) Election
7
Office of the Law Revision Counsel. 26 US Code 83 – Property Transferred in Connection With Performance of Services
8
Internal Revenue Service. Revenue Procedure 2001-43