The Ins and Outs of Making a Section 83(b) Election

Founders, executives, and employees of rapidly expanding companies should consider making a timely § 83(b) election if they received restricted stock in connection with the performance of services. 

If stock is transferred in connection with the performances of services, the person performing such services may elect to include in gross income the fair market value of the property at the time of the transfer as compensation for services.  Consequently, ensuing appreciation in the value of the stock between the time of its grant and the time when it vests is not taxable as compensation to the person who performed the services. 

A valid § 83(b) election must be made no later than 30 days after the date of the transfer of stock.  Because there are no exceptions to this rule, careful consideration should be given to situations where non-U.S. persons received restricted stock in connection with the performances of services and failed to timely make a  § 83(b) election.

See Idan Netser, Section 83(b) Election—Better Safe Than Sorry, Fenwick & West, LLP, June 10, 2014.