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Question: What is the Section 83(b) election and how do I file it within 30 days?

Section 83(b) Election: File Within 30 Days to Lock In Your Restricted Stock Tax Basis

A Section 83(b) election lets founders with vesting restricted stock pay tax on the grant-date value, not the later vested value. You have just 30 days from the transfer to file it with the IRS.

Tax Planning4 min read

Quick answer

File IRS Form 15620 or a signed written statement with the IRS no later than 30 days from the date your restricted stock was transferred to you. Making this election tells the IRS you want to include the property's fair market value at grant in income now, rather than the typically higher vested value years later. The election is irrevocable once made. If the shares are forfeited after you make the election, your deductible loss is limited to what you originally paid.

Key points

  • The Section 83(b) election lets you pay tax on restricted stock at its grant-date value rather than the typically higher vested value.
  • You have exactly 30 days from the transfer date to file Form 15620 or a signed written statement with the IRS.
  • Once made, the election is irrevocable without IRS consent, which is granted only in cases of factual mistake about the underlying transaction.
  • If you miss the deadline, you default to standard vesting-date taxation and lose the ability to lock in the lower grant-date spread.
  • If the stock is later forfeited after you file the election, your deductible loss is limited to the amount you paid for the property.

What Is the Section 83(b) Election?

When a company transfers restricted stock to a founder or early employee, the default tax rule defers income recognition until the property becomes substantially vested. Until that point, stock that is nontransferable or subject to a substantial risk of forfeiture escapes income inclusion.[1]

The Section 83(b) election changes that default. By filing the election, you choose to include the value of the restricted property at the time of transfer, less what you paid, in your income in the year of transfer. Any later appreciation in value is then treated as capital gain rather than ordinary income when the property eventually vests.[2]

If you are evaluating whether the election fits your overall compensation and tax planning strategy, Top Pro Accounting's advisory solutions can help you work through the analysis.

Why Make the Election: Locking In a Low Grant-Date Value

The IRS illustrates the benefit using a straightforward example. Suppose your employer sells you 100 shares at $10 a share when the stock's fair market value is $100 a share, and the stock is subject to a substantial risk of forfeiture for a 5-year period. Without the election, the stock is not substantially vested at transfer and you include nothing in income at that time. When the period ends and the fair market value is $200 a share, you must include $19,000 as ordinary income.[6]

Making the Section 83(b) election at grant replaces that large ordinary income inclusion with a much smaller one measured at the grant date. Any appreciation above the grant-date value becomes capital gain when you eventually sell.

The 30-Day Filing Deadline

To make the election, file Form 15620 or a signed written statement with the IRS service center where you file your return no later than 30 days after the date the restricted stock was transferred to you.[3] You must also provide copies to your employer and, where applicable, to any person for whom you will perform services in connection with the property transfer.

Once filed, the election cannot be revoked without the consent of the IRS, and the IRS grants that consent only in cases where you were under a mistake of fact about the underlying transaction, not simply because the election later proved unfavorable.[4]

Founders and principals in South Florida who receive equity compensation through service arrangements can work with our professional services tax help team to review the decision before the window closes.

What Happens If You Don't File or If Shares Are Forfeited

If the 30-day window passes without a filing, the election is permanently lost for that transfer. Each time a tranche vests, you report ordinary income equal to the fair market value at vesting minus what you paid. Because company valuations often rise significantly during vesting periods, this amount can far exceed the grant-date spread.

If you did make the election but the stock is subsequently forfeited, the IRS limits your deductible loss to the amount you paid for the property minus any amount you received on the forfeiture.[5] No refund is available for the income tax you already paid on the grant-date spread, which is one of the key trade-offs founders weigh when deciding whether to file.

Required Contents of the Written Statement

  • Your name, address, and taxpayer identification number (TIN)
  • A description of each property for which you are making the election
  • The transfer date and the tax year for which you are making the election
  • The nature of any restrictions on the property
  • The fair market value of the property at the time of transfer, ignoring restrictions except those that will never lapse
  • The amount you paid for the property, if any
  • A statement confirming that copies were provided to the appropriate persons

How Top Pro Accounting Can Help

Deciding whether to make the election requires weighing the grant-date tax cost against the probability that the stock will appreciate above the forfeiture threshold. Top Pro Accounting regularly helps founders and key employees work through this analysis as part of their individual income tax planning.

For help reporting a Section 83(b) election on your individual return, or to review the cost-benefit analysis before your deadline, see our individual tax return preparation service. For founders who also need guidance on S corporation compensation planning, see our related article on S corporation reasonable compensation.

Frequently asked questions

What happens if I miss the 30-day filing window for the Section 83(b) election?

Once the 30-day window closes, the election cannot be made for that transfer. The IRS will tax your restricted stock under the default substantial-vesting rules: you recognize ordinary income equal to the difference between the fair market value at each vesting date and what you originally paid. This amount is often substantially larger than the grant-date spread you would have recognized under the election, particularly if the stock has risen in value during the vesting period.

Where and how do I file the Section 83(b) election?

File Form 15620 or a signed written statement with the Internal Revenue Service Center where you file your individual return, no later than 30 days after the transfer date. The statement must include your name, address, and TIN; a description of the property; the transfer date and tax year; any restrictions on the property; the fair market value at transfer; any amount you paid; and confirmation that copies were provided to the appropriate persons. You must also send a copy to your employer or the relevant transferor.

Can I revoke the Section 83(b) election after filing?

No. The Section 83(b) election is irrevocable without the consent of the IRS, and the IRS grants consent only if you were under a mistake of fact about the underlying transaction. Deciding after the fact that you overstated the grant-date value, or that the vesting terms were less favorable than expected, does not qualify as a mistake of fact and will not result in consent being granted.

Does the Section 83(b) election apply to incentive stock options?

Restricted stock subject to a substantial risk of forfeiture is the most common property for which the election is filed. Incentive stock options are generally excluded from the restricted property rules under separate statutory provisions and are treated differently. Whether a particular equity award qualifies for the election depends on the specific terms of the grant and the governing plan documents. A tax professional can help you determine whether your specific award is eligible.

What loss can I claim if I made the Section 83(b) election and the shares are later forfeited?

If you forfeit the property after making the election, your deductible loss equals the purchase price you paid minus any proceeds you received on the forfeiture. The ordinary income tax you paid on the grant-date spread at the time of the election is not refunded or offset. This downside risk is one of the factors founders weigh when deciding whether to file.

Sources

  1. Restricted Property · Internal Revenue Service
  2. Choosing to Include Restricted Property in Income · Internal Revenue Service
  3. Filing the Section 83(b) Election: Form 15620 and 30-Day Deadline · Internal Revenue Service
  4. Irrevocability of the Section 83(b) Election · Internal Revenue Service
  5. Forfeiture After Making the Section 83(b) Election · Internal Revenue Service
  6. Restricted Stock Example: Holly Corporation · Internal Revenue Service
  7. Required Contents of the Section 83(b) Election Statement · Internal Revenue Service