Most startup tax mistakes are expensive and slow. The 83(b) election is the rare one that is expensive and fast: the window to fix it closes 30 days after the stock is issued, and nothing in the rest of the company’s life reopens it. The paperwork is one page.
This guide covers what the election does, who needs it, what to file, and the one scenario where filing hurts. It is general information, not tax advice.
What an 83(b) Election Does
The rule sits in Section 83 of the Internal Revenue Code and Treasury Regulation 26 CFR 1.83-2. When you receive stock for services and it is subject to a substantial risk of forfeiture (for example, the company can buy it back if you leave before it vests), the default is that you are taxed as the shares vest, on their value at that moment.
An 83(b) election flips the timing. Under the regulation, you may elect to include the property’s value in income at the time of transfer, minus whatever you paid. If you do, the vesting rules no longer apply, later appreciation is not taxed as compensation, and your tax basis equals what you paid plus the amount you included in income.
For a founder who buys shares at incorporation for a fraction of a cent, the value at transfer equals the price paid. The income to report is zero, and the clock for long-term capital gains starts on day one.
The 30-Day Deadline
The regulation says the election must be filed “not later than 30 days after the date the property was transferred.” It may also be filed before the transfer. The count is in calendar days, so weekends and holidays are included, and the regulation offers no extension. Investor guidance echoes this: CRV states plainly that the IRS provides no extensions for late filers.
Each person files for themselves. A cofounder’s election does not cover you, and each 30-day window runs from that person’s own issuance date. If you receive a second grant of restricted stock later, it has its own window.
What the Election Applies To
- Applies: restricted stock, and shares received through early exercise of options that are still unvested.
- Does not apply: unexercised stock options and restricted stock units (RSUs). There is no property transferred yet to elect on. (CRV draws the same line.)
If you are weighing early exercise, the tax mechanics for options are covered in our ISO vs. NSO guide, and the vesting terms themselves are in the founder equity and vesting guide.
How to File
The regulation lets you file in either of two ways, and the IRS recognises both:
- A written statement that satisfies 26 CFR 1.83-2(e). It must be signed, say it is made under Section 83(b), and include your name, address and taxpayer identification number, a description of the property, the transfer date and taxable year, the restrictions, the fair market value at transfer, the amount paid, and a statement that copies were furnished to the required people.
- IRS Form 15620, the standardized Section 83(b) election. The version we read is marked April 2025. Its instructions say that, in the alternative, you may file a written statement that meets the regulation. The form asks for the same items: your details, the property, the transfer date, tax year, restrictions, fair market value, amount paid and the amount to include in income.
Where it goes: the Form 15620 instructions (Rev. 4-2025) say to submit it by mail to the IRS office where you file your federal income tax return. Law-firm commentary since mid-2025 (Troutman, for one) reports that the IRS now also accepts Form 15620 electronically through an online account, and that the online form asks you to confirm no election was already mailed for the same equity. We could not confirm the current online mechanics on an IRS page this week, so check IRS.gov before you choose a channel, and do not file the same election twice by two routes.
Either way, the form and the regulation both require that a copy go to the company (the person for whom you perform services), and to the transferee if that is someone other than you. Keep proof of filing. Many advisers recommend certified mail with return receipt if you file on paper, and a saved confirmation if you file online, kept with your corporate records permanently because an acquirer’s lawyers will ask for it in diligence.
Worked Example: Same Stock, Two Tax Bills
A hypothetical with round numbers, federal tax only, using the top ordinary rate of 37% and the top long-term capital gains rate of 20%. It ignores state tax, the 3.8% net investment income tax, AMT and any QSBS exclusion.
- A founder buys 1,000,000 shares at $0.001 ($1,000 total) when the company is formed. Fair market value at purchase is also $0.001, so the income at transfer is $0.
- The shares vest over four years. For simplicity, assume the stock is worth $2.00 when it vests.
- The founder later sells everything at $5.00 per share.
| Without the election | With the election | |
|---|---|---|
| Ordinary income at vesting | $1,999,000 | $0 |
| Ordinary tax at 37% | $739,630 | $0 |
| Capital gain at sale | $3,000,000 | $4,999,000 |
| Capital gains tax at 20% | $600,000 | $999,800 |
| Total federal tax | $1,339,630 | $999,800 |
The election saves roughly $339,830 here, and the gap comes from two things: the $1.9M of appreciation between grant and vesting is taxed at the capital gains rate instead of the ordinary rate, and nothing is due before you can sell. Without the election you can owe tax on vesting shares you cannot yet sell, a so-called phantom income bill. CRV’s own illustrative example reaches the same direction of result at a smaller scale.
The Risk: Forfeiture
The election is a bet that you will stay. The regulation treats a forfeiture of property after an 83(b) election as a sale or exchange, with a loss limited to the amount you paid less any amount you receive back. If you paid $1,000 and walk away from unvested shares, the most you can claim is $1,000. If you reported significant income at grant and paid tax on it, that tax is not refunded.
That is why the election is nearly free for a founder buying at the incorporation price, and can be costly at a later stage when the shares have meaningful value. If the fair market value at grant is high, the upfront tax is real, so run the numbers with a tax professional first, and get a valuation (see our 409A valuation guide) rather than guessing.
Other things that do not rescue you:
- A falling stock price. Under the regulation, revocation needs IRS consent, and is available only where the transferee was mistaken about the facts of the transaction. A drop in value does not qualify, and the request has to be made within 60 days of discovering the mistake. The Form 15620 instructions point to the same rules.
- Errors in the filing. Wrong share counts, prices, values or taxpayer numbers invite challenge, so copy them from the stock purchase agreement.
The Link to QSBS
CRV notes the election starts the holding period for Section 1202 purposes at the grant date, provided the company meets the other requirements. If your company might qualify, see our QSBS guide, because a missed 83(b) can also push back the date your holding period begins.
A Founder Checklist
- Calendar the deadline the day shares are issued. Count 30 calendar days and aim to file in the first week.
- Pull the stock purchase agreement. You need the share count, price, date and the vesting or repurchase terms.
- Fill in the fair market value honestly. At formation it usually equals the price paid. For a later grant, use a proper valuation.
- File once, by one route, and send a copy to the company.
- Store the proof. You will want it when the company raises a seed round and again at exit.
- Do it for every cofounder, and for any new founder-level grant.
FAQ
What is an 83(b) election?
A choice, made by filing with the IRS, to pay tax on restricted stock at the value it has when it is transferred to you, rather than as it vests.
What is the deadline?
No later than 30 days after the date the property was transferred, counted in calendar days.
Do I need Form 15620?
No. The IRS says you may file Form 15620 or a written statement meeting Treasury Regulation 1.83-2. The form is simply a standard layout for the same information.
Does it apply to stock options or RSUs?
Not to unexercised options or RSUs. It applies to restricted stock and to early-exercised, unvested option shares.
What if I miss the deadline?
The election is generally unavailable, and the regulation provides no late-filing relief. Talk to a tax professional immediately; do not assume a workaround exists.
Can I cancel an 83(b) election?
Only with IRS consent, which is limited to cases of mistaken facts about the transaction, requested within 60 days of discovering the mistake.
What happens if I quit before the shares vest?
You forfeit the unvested shares. Your loss is limited to what you paid for them, and tax paid on income reported at grant is not refunded.
This guide is general information, not tax or legal advice. Confirm the current filing channel on IRS.gov and have a tax professional review any election where the shares have real value. More in the finance section on FutureSharks.
