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

By: Yokum

Yokum — Thu, 11 Mar 2010 09:37:25 +0000

@sheron – please check with your own advisors and read the disclaimers. If there is no “spread” (difference between exercise price and fair market value) at the time of exerise of an ISO, then there will be no AMT preference. Please see the following post for an explanation of the differences between exercise of an ISO and NSO. Generally speaking, a person will be better off with an NSO if he/she will exercise when there is no spread. http://www.startupcompanylawyer.com/2008/03/05/...

By: Yokum

Yokum — Thu, 11 Mar 2010 09:27:36 +0000

@Darryl – please check with your own advisors and read the disclaimers. If you are exercising fully-vested stock and there is no right of repurchase, then there is no need to file an 83(b) election.

By: sheron74

sheron74 — Thu, 11 Mar 2010 08:54:31 +0000

Hi Yokum,

Thank you for your great effort to maintain this site which is extremely helpful.

According to your posts, can I say employees who early exercise ISOs and file 83(b) election will be subject to AMT report, and income tax report at time he sells the shares acquired? If employee chooses not to early exercise ISO, my understanding is he does not need to report income tax at time of exercise, but need to report income tax at time he sells the shares.

If this is true, it seems early exercise of ISO with 83(b) election will not benefit employees in most of cases except it starts accruing time period earlier for long-time investment purpose. Plus, there is risk of double tax.

I am green in this area, please correct me if I am wrong

By: Darryl G

Darryl G — Wed, 10 Mar 2010 02:30:24 +0000

My situation seems typical but not covered here/in comments.

I'm not a founder in the startup I am working for but I was issued employee options. I'm about to leave the company having already worked past my 1 year cliff - and so essentially I will have to exercise the options within 30 days of my last day.

(I didn't elect to vest early but just signed my options agreement - which seems common among regular employees. Maybe that was the wrong decision?)

Given where I am now, can you tell me where I stand with regards to 83b election? Can I still make the election when I exercise my options or am I too late?

Many thanks

By: Yokum

Yokum — Mon, 22 Feb 2010 08:22:14 +0000

@Jane – please consult with a tax advisor. You will need some documentation from the company that the common stock was rendered worthless.

By: Yokum

Yokum — Mon, 22 Feb 2010 08:15:09 +0000

@KT – I punt to tax advisors.

By: Yokum

Yokum — Mon, 22 Feb 2010 08:11:55 +0000

@suebe71 – if you receive stock as consideration for services, you should report the FMV of the stock as income. Please check with your own tax advisors and read the disclaimers.

By: janebouffard

janebouffard — Mon, 15 Feb 2010 04:16:23 +0000

My husband filed a 83(b) with our year 2000 taxes after purchasing $15,000 worth of common stock in his startup (there were lots of preferred stocks too). The company sold in 2009 for peanuts and no common shareholders got anything. I am assuming we can take a 3,000 capital gain loss for the next 5 years. Is that correct? Also I have no paperwork yet. What will I need?

By: Chad

Chad — Sat, 13 Feb 2010 22:19:43 +0000

What if I e-File? How do I attach the form?

By: wktaylor66

wktaylor66 — Sat, 06 Feb 2010 04:47:36 +0000

I sold my single member LLC to Company A (which is private, closely-held and incorporated), in exchange for an adjustable promissory note, shares of restricted stock (not founders shares) AND an employment agreement.

Per the buy-sell agreement, the shares I received are subject to a vesting schedule AND substantial risk of forfeiture for certain circumstances which are concurrently covered under my employment agreement with Company A.

I received shares in exchange for the sale of the assets of my business, not necessarily for services rendered - although I have previously rendered services to Company A and I am currently rendering services to Company A on an ongoing basis, per my employment agreement.

I filed the Section 83b election via certified mail within 30 days of signing the agreement and claimed a value of $____ which I calculated based on the shares I received multiplied by the recent accounting valuation.

After reading through the posts, I'm wondering if I could have assigned a value of $0 to my shares since I did not pay for my shares. If I could have/should have assigned a value of $0, can I amend my return?

I've been told that given my unique circumstances, that I could claim the value of the shares received as LTCG to the extent that the value received exceeds my cost basis. I could subsequently report the future sale of my restricted shares as a LTCG based on the difference between the original value of the shares received and the sales price.

I'm sure I need to consult with a tax advisor and/or an attorney but I would be grateful for your opinion on the matter.

Regards,

KT