The 83(b) Election

You Have 30 Days. Miss This Filing and You Cannot Fix It.

The 83(b) election is one of the most important — and most frequently missed — tax filings for startup founders.

Key Takeaways

• The 83(b) election lets you pay taxes on your founder stock at the time of purchase, when the value is near zero, instead of later when the stock may be worth significantly more.
• You must file the 83(b) election with the IRS within 30 days of purchasing your restricted stock. There are no extensions and no exceptions.
• If you miss the deadline, you will owe ordinary income tax on the value of each tranche of stock as it vests — potentially creating a massive tax bill with no liquidity to pay it.
• This applies to founders purchasing restricted stock at incorporation. If you are buying stock subject to vesting, you almost certainly need to file.

The Filing Nobody Explains

You just incorporated your Delaware C-Corp. You purchased your founder shares — 5 million shares at $0.0001 per share. Total cost: $500. You feel good.

Then your lawyer mentions something about an "83(b) election" and a 30-day deadline. You nod. You file it away as a to-do. Two months later, you remember.

It is too late. And the consequences can be severe.

What Is an 83(b) Election?

When you purchase restricted stock — stock that is subject to vesting — the IRS treats it as compensation. Under Section 83 of the Internal Revenue Code, you owe ordinary income tax on the difference between what you paid for the stock and its fair market value.

The question is: when do you owe that tax?

Without an 83(b) election, you owe tax on each vesting date. As your stock vests over four years, you pay ordinary income tax on the difference between your original purchase price and the stock's fair market value at the time each tranche vests.

For a company that is growing, this can be catastrophic. If you bought shares at $0.0001 per share and by year two the 409A valuation is $2.00 per share, every vesting event creates a taxable event at the higher valuation — and you owe ordinary income tax on paper gains you cannot sell.

With an 83(b) election, you pay tax at the time of purchase. At incorporation, the fair market value of your shares is typically equal to (or very close to) what you paid. The taxable amount is zero or near zero. All future appreciation is taxed as capital gains when you eventually sell — a significantly lower rate.

The Math That Makes It Obvious

The difference can be hundreds of thousands of dollars in tax liability — or more.

How to File

The filing process is straightforward. The execution must be precise.

1. Complete the 83(b) election form. There is no official IRS form — it is a written statement that includes your name, address, Social Security number, the property description, the date of transfer, the fair market value, and the amount you paid.
2. Mail the completed election to the IRS within 30 days of your stock purchase date. Send it to the IRS service center where you file your annual return. Use certified mail with return receipt.
3. Keep a copy for your records. Attach a copy to your federal income tax return for the year of the purchase.
4. Provide a copy to the company.

The 30-day deadline is absolute. The IRS does not grant extensions. Courts have consistently refused to excuse late filings, even by a single day. If you miss it, you cannot go back.

The Risk You Accept

There is one downside to filing an 83(b) election: if you leave the company before your stock fully vests, the company repurchases your unvested shares (typically at your original purchase price). You paid tax on stock you no longer own, and you do not get a refund.

For most founders, this risk is worth taking. The purchase price at incorporation is so low that the tax paid is negligible. And the alternative — paying ordinary income tax on vesting over four years at escalating valuations — is far worse.

For International Founders

If you are a foreign founder incorporating a US entity, the 83(b) election still applies to your US stock purchase. Even if you are not a US tax resident, you may have US tax obligations on stock in a US company.

Foreign founders who later move to the US on a work visa should pay particular attention. If you did not file an 83(b) election and your stock vests while you are a US tax resident, the vesting events become US taxable income.

Additionally, the interaction between the 83(b) election and your home country's tax rules can be complex. Some jurisdictions do not recognize the 83(b) election, which means you may face different tax timing in different countries. Consult both a US and home-country tax advisor.

Common Mistakes

• Forgetting to file entirely. This is the most common and most costly mistake.
• Filing late. Even one day past the 30-day window is too late.
• Not using certified mail. Without proof of timely mailing, you have no evidence of compliance.
• Assuming your lawyer handled it. Confirm in writing. Ask for the certified mail receipt.
• Not filing because the tax amount is zero. File anyway. The election locks in your tax treatment for all future appreciation.

Focus on Building, Not Legal.

Fellow helps domestic and international founders navigate US legal complexity so they can focus on what matters — building. Ready to talk? Email your@fellow.legal to get started.