All posts tagged 83(b)

Where Do I File My 83(b) Election?

Where Do I File My 83(b) ElectionIf you have never filed a Section 83(b) election before, you might not know where to file it.

Increasingly, founders come to me who have been filing their Forms 1040 electronically. Many of these founders have never filed paper returns, and when I tell them they have to file the 83(b) election with the office of the IRS at which they file their returns, they don’t know what I am talking about. Because they haven’t been mailing in their Forms 1040, they don’t know where to file a Section 83(b) election.

They say to me: “I have e-filed the last few years so I actually don’t have an address when I look at my returns.”

The IRS Regulations make clear where you are required to file the 83(b) election.  They provide as follows:

“The election referred to in paragraph (a) of this section is made by filing one copy of a written statement with the internal revenue office with whom the person who performed the services files his return.”

If you don’t know where to find the physical address, you can refer to the instructions in Form 1040.

You can find these instructions at www.irs.gov/pub/irs-pdf/i1040.pdf. At the time of this blog post, the places to file were found on page 104.

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5 Things To Remember As You File Your Section 83(b) Election

As the founder of a startup company, by the time you get to the point of filing a Section 83(b) election with the IRS, you will have most likely already bought a helmet to keep your brains from flowing freely out of your ears from the mindboggling number of details involved in starting a company. You have been counseled on what type of entity to form, where to incorporate, founder vesting schedules, and myriad other details. You have gotten all of your documents executed and in place. You have properly completed and filled out your Section 83(b) election. Now all you have to do is file it. You are just about done! The purpose of this post is to give you guidance on this last step.

There are few tax code sections with rules as stringent as Section 83(b). Along with the rules being very specific and time sensitive, not complying with them could cause a founder to owe substantially more income tax down the road than necessary. So, put the helmet on and let’s go.

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Imposition of Vesting On Stock in a Financing

It is fairly common in connection with a financing that an investor will require a founder to agree to place a certain number of the founder’s fully vested and owned founders shares under an at-cost repurchase restriction, which at-cost repurchase right lapses over a new vesting period.

The question that this raises from a federal income tax perspective is whether the founder should or needs to file a Section 83(b) election upon the imposition of the new vesting conditions. The IRS answered this question in Revenue Ruling 2007-49. Continue reading →

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