Comments on: What is an 83(b) election?

By: Ojjuan

Ojjuan — Thu, 01 Dec 2011 04:58:08 +0000

Here is my scenario...

I have formed a new business along with one business partner. Back in Sept 2011, we registered as a Delaware corporation with an S-corp election (form 2553). In the process of filing, we specified an initial number of issued shares (1000), and in the S-corp election, we had to specify either a % ownership or a number of shared owned by the company founders. Without much thought, we simply stated that we each had 50% ownership. We did NOT sign any shareholder agreement, issue any restricted shares or actually purchase shares of the company.

Fast forward to today. We want to add a third (equal) partner and sign a shareholder agreement between the three founders, then file an 83(b) election. We will each be investing in the company and purchasing restricted shares. Since there has been no purchase of shares subject to substantial risk of forfeiture to this point, I don't believe we are under any time restriction for an 83(b) election. But, does the act of filing the S-corp election and defining 50% ownership to the two original founders mean that we need to rewind what we have already done? Say, sell back our shares to the company then reissue restricted shares to 3 founders?

Thanks!

By: Sspar

Sspar — Thu, 01 Dec 2011 03:18:43 +0000

I rec'd some restricted units in an operating private company (LLC), but have no idea of the FMV. The company does not provide guidance. It also is not issuing any 1099 or taking a tax deduction for the value. Other classes of stock have preference and my stock is worth $0 even at reasonable ale prices (i.e. only participates at high valuation liquidity event). Is it reasonable for me to assume minimal value on my 83(b) election?

By: Miguel de Vega

Miguel de Vega — Tue, 04 Oct 2011 19:36:32 +0000

Extremely interesting post!

I wonder if it applies to our situation. We are nonresident aliens who just incorporated in Delaware, and who are about to issue founder stock subject to vesting. I think (but I am not sure) that we (as founders) will NOT have to pay income tax in the U.S., but in our residence countries. In that case, it would not be necessary to make an 83(b) election, since we wouldn't even have to get an Individual Taxpayer Identificaiton Number (ITIN). Does this make any sense to you?

By: The Law Office of Doug Bend

The Law Office of Doug Bend — Sun, 26 Jun 2011 06:22:16 +0000

If you are looking for more information on 83(b) elections, I recently published a post on the topic:

http://wp.me/p1ivVG-ao

Thank you,
Doug

By: rpatel76

rpatel76 — Sat, 25 Jun 2011 02:52:23 +0000

The 30 day window starts from the date you received the shares, and this date should definitely be in records. If you feel doubt that you will be able to complete it in this time, I would strongly suggest working with a tax preparer or (cheaper route) going through services like 83belection.com that will do it for you in just a matter of days.

By: Marko

Marko — Thu, 12 May 2011 06:51:08 +0000

if you elected for 83b when you started the company and you raise money afterwards and have a new vesting schedule etc, do you need to do the 83b process again, or since you already own the shares it's not necessary?

By: ntreuter

ntreuter — Mon, 09 May 2011 22:37:55 +0000

I read this in Do More Faster for the first time, and I'm glad because I would have never known otherwise.

By: Best Taxmen

Best Taxmen — Wed, 20 Apr 2011 08:23:23 +0000

What if the election is not attach to the tax return. Can it be attached to an amended return? Ron

By: MarMar

MarMar — Sun, 27 Mar 2011 23:05:38 +0000

if a person elects an 83b will the employee paid payroll tax still be taken at the time of original vesting or is the whole transaction deferred?

By: Roger

Roger — Sat, 19 Mar 2011 02:56:41 +0000

Yokum, in an extreme case, if I all my restricted stock purchased vested (four year passed), I did not have any knowledge of 83b election at all, means did not file, did not pay the tax between purchase price and FMV, even did not pay tax for the vested parts in past four years. Now, the part of stock were sold at a significant gain. What is the exactly the fatal tax consequence? pay tax at ordinary income rate on vested part each year, penalty and accumulated interests on each years gain, etc. Is that right? What the tax rate will be on the gain between the first year's value (first 1/4 vested part) and today's sell value? For example, 0.01 was the initial FMV and purchase price, 1.01 was the value of one year later, and today the sold price is 10. there are $9 gain for this 3 year's holding. What is the tax rate on this $9 gain, long term capital gain or ordinary income rate? Thanks.