The 83(b) Election For Startup Founders

If founders stock is issued subject to a vesting period, each founder should make a Section 83(b) election with the IRS within 30 days of purchasing the restricted stock. If a founder fails to make a 83(b) election, each vesting milestone will be a taxable event for the founder. “Income” will be calculated as the difference between the FMV of the portion of stock that vested and the original purchase price of the newly-vested portion.

Thus, failure to make an 83(b) election could leave the founder with a tax bill without experiencing a liquidity event.

The 83(b) election neutralizes this potential disastrous tax consequence, and the founder recognizes “income” upon the initial restricted stock purchase. This income is usually $0, as the initial restricted stock purchase price is usually made at FMV.

Incorporation83(b), restricted stock purchase

7 thoughts on “The 83(b) Election For Startup Founders

  1. If the founders failed to file a 83(b) when forming the corporation, and the initial stock was a no par value, can they file an 83(b) prior to setting an updated present valuation based on the no par value?

    What options do you have if the 83(b) was not filed up front?

  2. I have an 83(b) election document that has a value of the units at $0. How do I include this with my tax return. Do I need to?

  3. I have an 83(b) election document that has a value of the units at $0. How do I include this with my tax return. Do I need to?

  4. […] you all the basic of dozens of legal issues that will come up with your startup.  Everything from 83b to vesting […]

  5. […] days with your advisors and lawyers and amend all your documents to get it right.  The only thing that can’t be changed later is the 83B–get that done correctly within 30 days of incorporation. Outsource all over the […]

  6. […] days with your advisors and lawyers and amend all your documents to get it right.  The only thing that can’t be changed later is the 83B–get that done correctly within 30 days of incorporation. Outsource all over the […]

  7. How often do you file an 83b election. So for example a founder is getting 1000 shares that will be vested over 4 years. 250 shares are immediately vested and the additional 750 spread over 4 years. Is the 83b election made quarterly (4 times a year), yearly or just once when the initial schedule is setup?

    Thoughts?

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