The Section 83(b) Election

Restricted stock — founder shares subject to a vesting agreement, early-exercised options, or a profits interest in a partnership — presents a one-time choice the moment it is granted. Without an election, you recognize ordinary income each year as the stock vests, valued at the share’s FMV on each vesting date; for a company that grows quickly, that compounds into a six- or seven-figure ordinary-income bill on paper gains you cannot yet sell. With an election under IRC §83, made under subsection (b), you recognize the entire spread at grant, when the shares are typically worth their strike price and the income is zero or trivial — and every dollar of appreciation thereafter is a capital gain on a holding clock that starts immediately.

For a founder issued common stock at a fraction of a cent per share when the company is formed, the 83(b) is essentially free: zero recognized income, capital-gains treatment on every dollar above the strike, and — because the election starts the IRC §1202 QSBS holding clock on the same day — the gateway to a tax-free exit five years later (section “Qualified Small Business Stock”). Missing the election forfeits both treatments. The same logic applies in proportion to any employee who early-exercises an option before it has appreciated meaningfully.

The mechanics are unforgiving. The election is a one-page filing to the IRS service center where you file your return, postmarked within 30 days of the transfer of the property — measured from the actual property transfer, not from board approval or signing preliminary paperwork. There is no extension, no late filing, no relief for ignorance. Send it certified mail with return receipt and keep the green card; that receipt is the only proof you will ever have, and the IRS does not acknowledge these filings. Form 15620, “Election to Include in Gross Income in the Year of Transfer of Property Pursuant to Section 83(b)” is a standardized form the IRS released in late 2024 — use it instead of drafting a custom letter, since it forecloses arguments about whether the statement contained every required element. A copy goes to your employer, which Treas. Reg. §1.83-2(d) still requires. Attaching a copy to that year’s return has not been required since T.D. 9779 in 2016; do it anyway if your software allows, but do not treat the return as the filing — the 30-day mailing is the filing, and a return filed in April cannot cure a January deadline you missed.

There is no scenario where filing the 83(b) on substantially-zero-value founder stock is the wrong call. The decision tightens at later-stage early-exercise, when the spread between strike and FMV is already large: the immediate ordinary-income hit may exceed the tax saved by capital-gains conversion if the company never exits. Run the math against a realistic probability of success before you mail the form. Once the spread is no longer trivial, the 83(b) is a genuine bet, not a free option.