A section 83(b) election lets a person who receives property for services pay tax on the value at transfer instead of at vesting. The election must be made within 30 days after the transfer. The deadline comes from the statute itself, and the election cannot be revoked except in narrow circumstances. For a CPA firm, the practical work is a calendar control at the moment a client receives restricted stock, a complete written statement, and a file that proves timely delivery.
What does section 83 do without an election?
Under section 83(a), when property is transferred in connection with services, the person who performed the services includes in gross income the excess of the property's fair market value over any amount paid. The measurement date is the earlier of the date the rights become transferable or the date they stop being subject to a substantial risk of forfeiture. The inclusion falls in the first taxable year in which either condition is met.
A substantial risk of forfeiture exists, under section 83(c), when the holder's right to full enjoyment of the property depends on future performance of substantial services. A founder's stock that vests over four years of continued service is the typical case. Without an election, income is recognized as each tranche vests, measured at the value on the vesting date.
What does the election change?
Under section 83(b), the person may elect to include the excess in income for the year of transfer. Once made, section 83(a) no longer applies to that transfer. Treas. Reg. 1.83-2(a) states the effects:
- The amount included is the fair market value at transfer, determined without regard to the lapse restrictions, minus any amount paid.
- The election is available even if the person paid full value, in which case the inclusion is zero.
- Later appreciation is not compensation income when the restrictions lapse.
- Basis becomes the amount paid plus the amount included.
The employer or service recipient has a matching deduction under section 83(h) equal to the amount the service provider includes, taken in the employer's taxable year in which or with which the individual's inclusion year ends.
What is the deadline?
Section 83(b) requires the election within 30 days after the transfer. The regulation in 1.83-2(b) repeats this and allows filing before the transfer. The 30 days run from the date of transfer, not from the date the grant is approved or the agreement is signed, unless those are the same date. The election is made by a written statement filed with the IRS; paragraph (c) of the regulation controls where it goes, and the instructions to the current IRS form give the filing address. The IRS publishes Form 15620 (Rev. 4-2025), Section 83(b) Election, for this purpose.
Because the deadline is statutory and tied to the transfer, the control should start on the day the stock purchase agreement or award is executed: record the transfer date, count 30 days, and set the mailing date well ahead of day 30.
What must the statement contain?
Treas. Reg. 1.83-2(e) requires a statement signed by the electing person that indicates it is made under section 83(b) and includes:
- The taxpayer's name, address and taxpayer identification number.
- A description of each property.
- The transfer date and the taxable year for which the election is made.
- The nature of the restrictions on the property.
- The fair market value at transfer, disregarding lapse restrictions.
- The amount paid, if any.
- A statement that copies were furnished as paragraph (d) requires.
Paragraph (d) requires a copy to the person for whom the services were performed. If the service provider and the transferee are different people, a copy also goes to the transferee. Keep proof of each step: the signed statement, the mailing receipt, and the delivery of the copy to the company.
How does the spread work? A worked example
A founder buys 10,000 shares of restricted stock from the company at $0.10 per share ($1,000 total). The shares vest over four years. On the transfer date the fair market value is $1.00 per share, disregarding the restrictions, so the shares are worth $10,000.
With a timely election.
- Income at transfer: $10,000 value minus $1,000 paid = $9,000.
- Basis: $1,000 paid + $9,000 included = $10,000.
- When the shares vest, no further compensation income arises, even if the stock is now worth $5.00 per share ($50,000).
- If the founder later sells all 10,000 shares at $8.00 ($80,000), the gain is $80,000 minus $10,000 basis = $70,000, reported as sale gain rather than compensation.
Without an election.
- If all shares are vested when the value reaches $5.00 per share, income at vesting is $50,000 value minus $1,000 paid = $49,000 of compensation.
- With installment vesting, each tranche is measured at its own vesting date value, so the later tranches carry a larger spread if the stock keeps rising.
The election fixes the compensation income at $9,000 instead of $49,000, at the price of paying tax before the stock is liquid. The cost is worst when the stock is later forfeited or becomes worthless.
What happens if the shares are forfeited?
Section 83(b)(1) says that if property is forfeited after an election, no deduction is allowed for the forfeiture. Treas. Reg. 1.83-2(a) adds that a forfeiture of substantially nonvested property is treated as a sale or exchange, with a loss equal to the amount paid minus the amount realized on forfeiture. If the property is a capital asset, the loss is a capital loss.
In the example, if the founder leaves in year one and forfeits all shares for no payment back, the loss is limited to the $1,000 paid. The $9,000 included in income at transfer produces no deduction. This asymmetry belongs in the client conversation before the election is made, especially where the spread is large.
Can an election be revoked?
Section 83(b) permits revocation only with the Secretary's consent. Under Treas. Reg. 1.83-2(f), consent is granted only if the transferee was under a mistake of fact about the underlying transaction, and the request must be made within 60 days after the mistake became known. A mistake about the value of the property or a decline in its value does not qualify, and neither does failing to perform an act contemplated at the transfer. Treat the election as permanent.
How do clients and the firm coordinate?
- Companies issuing restricted stock to founders should tell the recipient about the 30-day rule in the same email that sends the signed agreement.
- Planning for stock that may qualify as small business stock should consider the holding period and basis consequences. See QSBS after the 2025 legislation.
- The book side of the grant, including how the award is measured and expensed, is covered in ASC 718 for private companies.
- For investor-backed companies with preferred stock and founder vesting, see venture-backed startup audit.
CORAA prepares ready-to-review audit files for US CPA firms; see /us.
Sources
- Legal Information Institute, 26 CFR 1.83-2, Election to include in gross income in year of transfer: https://www.law.cornell.edu/cfr/text/26/1.83-2
- Legal Information Institute, 26 U.S.C. 83, Property transferred in connection with performance of services: https://www.law.cornell.edu/uscode/text/26/83
- Internal Revenue Service, Form 15620 (Rev. 4-2025), Section 83(b) Election: https://www.irs.gov/pub/irs-pdf/f15620.pdf
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