What Is an 83(b) Election: Filing, 30-Day Deadline, and QSBS

An 83(b) election is a choice you make under Section 83 of the Internal Revenue Code to pay ordinary income tax on restricted stock at the moment it’s transferred to you, rather than waiting until it vests. Filed with the IRS within 30 days of the grant, the election locks in your taxable amount at today’s fair market value. If the stock climbs after that, the growth is taxed later as capital gain instead of ordinary income. For early-stage founders and employees whose shares are worth almost nothing on day one, that shift can be worth a great deal of money.

Why the Default Rule Is a Problem

When you receive restricted stock for services, the IRS doesn’t tax you right away. Under Section 83(a), the tax event is pushed to vesting — the point when you have an unconditional right to keep the shares and transfer them freely.¹ At that point you owe ordinary income tax on the difference between what you paid and what the shares are worth.

That works out badly when the company grows during the vesting period. Take a founder who buys 1,000,000 shares at $0.001 apiece at incorporation. Four years later, when those shares vest, each one is worth $5.00. The taxable spread is roughly $4.999 per share — close to $5 million of ordinary income, taxed at rates that can reach 37 percent federally.² The tax bill can arrive years before there is any liquidity to pay it.

What the Election Changes

Section 83(b) lets you opt out of the wait. You tell the IRS to tax you now, based on the stock’s value on the transfer date, rather than at vesting.¹

For a founder buying shares at $0.001 when the fair market value is $0.01, the spread is $0.009 per share. On a million shares that’s $9,000 of ordinary income and a tax bill of a few thousand dollars at most. Everything that happens to the stock’s value after that gets treated as capital gain when you sell. Long-term capital gains rates — 0, 15, or 20 percent depending on income — sit well below ordinary income rates. Without the election, that entire climb from grant to vesting would have been ordinary income.

Which Equity Qualifies

The election is available for property transferred to you in connection with services that remains subject to a “substantial risk of forfeiture,” typically a vesting schedule that lets the company repurchase your shares if you leave.¹ You have to actually own the shares on the date of the election, even if you might have to give them back later.

Two situations fit cleanly. Restricted stock awards are the common case: the shares are issued to you at grant with a three- or four-year vesting schedule attached. Early-exercised stock options are the other: some private companies let you exercise before your options vest, so you pay for and receive the shares while the unvested portion stays subject to a company buyback right. Filing within 30 days of that early exercise locks in the tax at the exercise-date spread, which is often small.

Two situations don’t fit. Standard, unexercised stock options don’t qualify because no property has been transferred yet — you only hold a right to buy later. Restricted stock units also don’t qualify: an RSU is a contractual promise to deliver shares after vesting, not an actual transfer of stock at grant. Section 83 needs a completed transfer.

When the Election Can Backfire

The election is a bet that you’ll vest and that the stock will hold or grow in value. If either turns out wrong, the money you paid the IRS doesn’t come back.

The statute is explicit that if you forfeit property after making an 83(b) election, no deduction is allowed for the forfeiture.¹ The ordinary income you reported, and the tax you paid, are simply gone. If you paid cash for the shares, you may be able to claim a capital loss for that out-of-pocket amount, but the income you recognized because of the election doesn’t turn into basis for loss purposes. Pay $1,000 for stock, report $9,000 of income through the election, then forfeit the shares, and the deductible capital loss is capped at the $1,000 you actually paid.

A few situations make the election a poor choice:

A large spread already exists at the grant date, so the immediate tax bill runs into serious money at ordinary income rates.
You’re not confident you’ll stay through vesting.
The stock is more likely to fall than rise, which would leave you having prepaid tax on a value the shares never had again.

The election is also hard to unwind. Treasury regulations allow the IRS to consent to a revocation only where the filer made a “mistake of fact” about the underlying transaction, and the request has to be made within 60 days of discovering the mistake. Second thoughts and a falling share price don’t count.³

How to File

The IRS now publishes Form 15620 as an optional standardized form for 83(b) elections. It isn’t required. A self-drafted written statement that includes everything Treasury Regulation 1.83-2(e) calls for is equally valid.⁴

Either way, the filing has to include:

Your full legal name, address, and Social Security number or ITIN.
A description of the property: number of shares, name of the issuing company, and class of stock.
The date of the transfer and the taxable year the election applies to.
The nature of the restrictions — the vesting schedule or other forfeiture conditions.
The fair market value of the property at the time of transfer, even if that value is zero or nominal.
The amount you paid for the shares.
A statement that copies have been provided to the required parties.

The election has to be signed by the person making it.³ You also have to give a copy to the company that transferred the shares, so it can handle payroll reporting correctly.

The 30-Day Deadline

The election has to be filed no later than 30 days after the property was transferred to you. The deadline is strict. The IRS does not grant extensions or late-filing relief for a missed 83(b).¹ If the 30th day falls on a weekend or legal holiday, it rolls to the next business day.⁴

File by mailing the completed form or statement to the IRS service center where you file your individual income tax return. Send it USPS Certified Mail with Return Receipt Requested. The postmark on the certified mail receipt is your proof of the mailing date, and the return receipt is your proof of delivery. The IRS does not send its own acknowledgment, so those two pieces of paper are the only evidence you’ll have if the timing is ever questioned.

Starting the Clock on Qualified Small Business Stock

For founders in a qualifying C corporation, the election does something else useful: it starts the holding-period clock for the Section 1202 exclusion. Section 1202 can exclude up to 100 percent of the gain on qualified small business stock held at least five years, capped at $10 million per issuer or ten times your basis, whichever is greater.⁵

Without an 83(b), the holding period for restricted stock doesn’t start until vesting. With the election, it starts at the grant date. A founder who files on day one and sells five years later meets the holding period; a founder without the election is still counting from whenever the last tranche vested.

What to Keep and How to Report It

You no longer have to attach a copy of the 83(b) election to your annual tax return, but keep a full set of records permanently: the signed election, the certified mail receipt, and the return receipt. You’ll need them years later when you sell the shares and have to establish your cost basis and show that the income was already picked up in an earlier year.

On the return for the year of the transfer, the spread between fair market value and what you paid is compensation income. Employees typically see it flow through their W-2; founders and contractors may need to report it directly. When you eventually sell vested shares, gain above the fair market value you reported at the time of the election is capital gain, taxed at long-term rates if more than a year has passed since the transfer date.

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 1.83-2 Election to Include in Gross Income in Year of Transfer
4
Internal Revenue Service. Form 15620 Section 83(b) Election
5
Office of the Law Revision Counsel. 26 USC 1202 Partial Exclusion for Gain From Certain Small Business Stock