83(b) election
US tax election to be taxed at grant rather than vesting on restricted stock. Must be filed with the IRS within 30 days of grant.
| Statutory basis | Internal Revenue Code ยง 83(b) |
|---|---|
| Filing deadline | 30 days from the date the property is transferred (NOT vested) |
| Filing location | IRS Service Center where you file your individual return |
| Canadian equivalent | No direct equivalent; section 7 of the ITA governs employee shares |
Why timing matters
Section 83 of the Internal Revenue Code governs the taxation of property transferred in connection with services. Without an 83(b) election, restricted stock is taxed at each vesting date on the FMV at that date. The recipient effectively becomes a tax-payer-as-they-vest, and the taxable amount can grow substantially as the corporation appreciates.
The 83(b) election lets the recipient elect to be taxed at the time of grant instead. For early-stage founders, where the grant-date FMV is essentially zero, the tax due at grant is also essentially zero. All future appreciation is then taxed as capital gains on eventual sale, not as ordinary income at each vesting tranche.
The math, with a founder example
A founder receives 5,000,000 shares of restricted stock at $0.0001 per share (grant-date FMV: $500). The shares vest over 4 years.
- With 83(b): Tax at grant on $500 of ordinary income, typically resulting in a few dollars of federal tax. No further income tax at vesting. Eventual sale taxed as capital gains.
- Without 83(b): Tax at each vesting tranche on the then-FMV. If the corporation reaches a $200M valuation by year 4, the value of each tranche could be hundreds of thousands of dollars, all taxed as ordinary income at the founder's marginal rate. Total tax liability could easily exceed $1M before any sale.
The election costs essentially nothing at grant; missing it can be financially catastrophic.
How to file
The 83(b) election is filed by sending a written election to the IRS Service Center where you file your personal return. The election must include:
- Taxpayer name, address, SSN/TIN
- Description of the property (class, number of shares, corporation name)
- Date of transfer and taxable year
- Nature of the restrictions (vesting, repurchase right, etc.)
- Fair market value at grant
- Amount paid for the property
- Signature
A copy must also be delivered to the corporation. It is standard practice to send by USPS Certified Mail with Return Receipt to establish proof of the 30-day filing.
Note: as of recent IRS guidance, the election does not need to be attached to the recipient's annual tax return, but the IRS-stamped copy should be retained indefinitely.
Octelligence flags every restricted-stock grant to a US recipient and reminds the holder of the 30-day 83(b) deadline. The election document and the proof of filing are stored alongside the grant in the minute book.
See stock options & vestingRestricted-stock grants flagged, election templates ready, proof of filing stored with the grant.