Section 83(b) Election
An election to recognize income on the receipt of restricted property (typically founder or employee equity subject to vesting) at the time of grant rather than at vesting. Made by filing a written election with the IRS within 30 days of receipt. The election fixes the taxable amount at the grant-date value and starts the capital gains holding period.
A Section 83(b) election is a federal tax election under Section 83(b) of the Internal Revenue Code allowing a recipient of restricted property, typically founder stock or employee equity subject to vesting, to recognize income at the time of grant rather than waiting until the property vests. The election fixes the taxable amount at the grant-date fair market value, starts the capital gains holding period, and converts what would otherwise be ordinary income at vesting into capital gain on later sale. The election must be filed with the IRS within 30 days of receipt, a deadline that has no extensions.
Why the election matters
Without an 83(b) election, the recipient of restricted property recognizes ordinary income on each vesting date equal to the property's fair market value at vesting (less any amount paid). For founders whose stock is subject to a 4-year vesting schedule, this means recognizing ordinary income, at ordinary income rates, on each vesting tranche, calculated against the (presumably) growing value of the company. With an 83(b) election, the entire grant-date value is recognized once at grant, when the value is typically minimal, and all future appreciation is taxed as capital gain on sale.
The 30-day deadline
The election must be filed with the IRS within 30 days of the property transfer (the date of stock grant or unvested equity issuance). The deadline is set by statute and the IRS cannot extend it, though a deadline that falls on a Saturday, Sunday or legal holiday moves to the next business day under 26 U.S.C. § 7503. The election is filed by mailing a written statement (Rev. Proc. 2012-29 provides a sample) to the IRS office where the recipient files their tax return, with a copy furnished to the person for whom the services are performed (26 C.F.R. § 1.83-2(d)). For property transferred on or after January 1, 2016, a copy no longer has to be attached to the tax return. Since 2025, the IRS has also accepted Form 15620, its standard 83(b) election form, through an online submission on its website.
Required election content
The 83(b) election must include: (1) name, address, and taxpayer identification number of the taxpayer; (2) description of the property (e.g., 1,000,000 shares of Common Stock); (3) date of transfer and tax year for which the election applies; (4) nature of restrictions on the property; (5) fair market value at transfer (without regard to lapse restrictions); (6) amount paid for the property; and (7) a statement that copies have been furnished to the persons required to receive them. The statement must be signed and must say that it is made under section 83(b).
Risk of forfeiture
If the recipient pays tax on the grant-date value via 83(b) election but later forfeits the unvested shares (e.g., by leaving the company before vesting), no deduction is allowed for the amount previously included in income. A capital loss may be allowed only for any amount actually paid for the shares, less any amount realized on the forfeiture. This is the principal risk of the election. For founders highly likely to remain through vesting and where grant-date value is low (often nominal), the risk is small relative to the upside. For employees with material grant-date value or uncertain commitment, the analysis is more nuanced.
When the election is most valuable
The election is commonly made by founders receiving restricted stock in a newly formed corporation, where the per-share value is typically nominal and paying that value means little or no income at grant. The election starts capital-gain treatment and the holding period for the entire stake at grant. For employees receiving stock at fair market value, the election analysis depends on growth expectations, vesting risk, and the recipient's individual tax situation.
The 83(b) election is one of the few formation steps where a missed deadline cannot be fixed by filing late. For Texas founders forming a corporation with vesting on founder stock, the 30-day period runs from the stock grant, so the election is often prepared with the grant documents. Proof of timely filing, such as a certified mail receipt or the IRS online confirmation, and copies in the company's records and the founder's tax records are the usual evidence if timeliness is later questioned.