83(b) Election Filing Rules

The 83(b) election is a critical tax filing that founders and early employees must complete when receiving company shares. It's an archaic but important process that can save millions in taxes.

What is an 83(b) Election

• Tax filing that lets you pay taxes on shares at their current (low) value rather than future value
• Must be filed within 30 days of receiving company shares
• Critical for founders and early employees receiving equity

Filing Process Requirements

• Must physically mail the document to IRS
• Requires handwritten letter explaining the election
• Need to write a check to your company for the shares (often ~$100)
• Must include self-addressed stamped envelope for IRS confirmation
• IRS must receive within 30-day window

Key Considerations

• Missing the 30-day deadline can result in massive tax implications
• No digital filing option available - must be physical mail
• Need to save proof of filing (stamped envelope from IRS)
• IRS won't check compliance unless you get audited
• Document becomes extremely important during company sale/exit

Common Mistakes to Avoid

• Waiting too long to file (must be within 30 days)
• Not keeping proof of filing
• Assuming digital filing is possible
• Not writing check to company for shares
• Forgetting to include return envelope

Impact of Missing Filing

• Could owe taxes on full value of shares as company grows
• May face tax bills without having liquid assets to pay
• Can't retroactively file after deadline
• Could affect ability to claim tax benefits during exit

The process is notably archaic but critical - missing this filing can result in owing millions in taxes later, while proper filing can provide significant tax savings during a company exit.