83(b) Election: When It Applies and the 30-Day Deadline

An 83(b) election can move a compensation tax event from the future to the present.

That can be valuable when substantially nonvested property has a low current value and significant future upside.

It can also create tax on property that is later forfeited.

The election is therefore not simply a tax-reduction technique.

It is a timing decision made under uncertainty.

What property can qualify?

Section 83(b) applies when property is actually transferred in connection with services and the property is substantially nonvested.

A common example is founder or employee stock transferred subject to a repurchase right that lapses as services are performed.

The election does not generally apply to an ordinary RSU because the employee has not yet received the underlying property.

What does the election do?

Without the election, Section 83(a) generally waits until the transferred property becomes transferable or is no longer subject to a substantial risk of forfeiture.

A valid 83(b) election instead includes the relevant value at transfer.

The compensation amount is generally:

FMV at transfer − amount paid

Example

Suppose an employee receives 1,000 substantially nonvested shares.

At transfer:

• FMV = $1 per share;
• employee pays $0.10 per share.

Total FMV:

$1,000

Amount paid:

$100

Compensation under the election:

$900

Basis generally becomes:

$100 paid + $900 compensation = $1,000

If the stock later vests when it is worth substantially more, the vesting itself generally does not create a second Section 83 compensation event for the appreciation covered by the election.

The 30-day deadline

The election must be filed no later than 30 days after the property is transferred.

The clock runs from transfer, not:

• the grant approval date unless that is also the transfer date;
• the vesting date;
• the first payroll date;
• the date the employee learns about the election.

Section 7503 can affect a deadline that falls on a Saturday, Sunday, or legal holiday.

Rev. Rul. 83-116 addresses the application of that rule to the 83(b) deadline.

Filing method

The IRS provides Form 15620 as a standardized form for making a Section 83(b) election.

A compliant written statement satisfying Treas. Reg. §1.83-2 remains an alternative.

Do not assume that emailing HR, signing an internal company form, or telling the company about the election constitutes filing it with the IRS.

The applicable copies should also be provided to the service recipient or transferee where required.

Current regulations no longer require the taxpayer to attach another copy of the election to the annual federal income-tax return.

What happens to the holding period?

With a valid election, the capital-gain holding period generally begins just after the property transfer rather than waiting for substantial vesting.

That can materially affect a later stock sale.

The forfeiture risk

The election accelerates tax.

It does not guarantee the employee will keep the property.

If the employee later forfeits the stock, the tax consequences do not simply reverse as though the election never happened.

That is one of the most important risks in the decision.

Can the election be revoked?

Revocation generally requires IRS consent.

An employee should not treat an 83(b) election as a provisional filing that can be casually undone if the company's prospects change.

83(b) and QSBS

An early stock transfer and an 83(b) election can interact with the timeline relevant to qualified small business stock.

But Section 1202 eligibility requires a separate analysis.

Do not assume that making an 83(b) election makes stock QSBS.

The future QSBS & Founder Stock Atlas section owns that doctrine.

Common 83(b) mistakes

Watch for:

• trying to elect on an ordinary RSU;
• counting 30 days from vesting instead of transfer;
• assuming an internal company submission equals IRS filing;
• assuming Form 15620 is the only permissible format;
• following outdated instructions to attach the election to the annual return;
• assuming late relief is routine;
• ignoring the tax cost if the stock is later forfeited;
• assuming the election itself establishes QSBS qualification.

Related pages

• Restricted Stock: Vesting, Compensation Income, and Cost Basis — understand the default treatment when no election is made.
• Equity Compensation Cost Basis: How Double Tax Reporting Happens — see how the election establishes stock basis.
• QSBS & Founder Stock — Section 1202 qualification.