A Section 83(b) election lets someone who receives restricted (unvested) property, usually founder or employee stock subject to vesting, choose to be taxed at grant instead of at each vesting date. The recipient reports ordinary income equal to the stock's fair market value at grant minus anything paid for it, and all later appreciation is taxed as capital gain when the shares are sold. Without the election, each vesting tranche is taxed as ordinary income at its then-current value, which can be catastrophic if the company's value has climbed. The election must be filed with the IRS within 30 days of the transfer, with no extensions and essentially no relief for missing it. It is most valuable when the grant-date value is nominal, so the upfront tax cost of electing is close to zero.
Section 83(b) Election
Primary authority: IRC §83(b)
The authority behind it
IRC §83(b)
Every entry in this glossary cites the statute, regulation, or IRS guidance behind it.
Worked example
A founder buys 1,000,000 restricted shares at $0.001 each on day one and files an 83(b) election reporting zero income (value equals price). Four years later the shares are worth $3 each; with the election, none of that $3,000,000 of vesting-date value was ordinary income, and the entire gain will be capital gain at sale.
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