A Section 83(b) election is a tax election that allows a recipient of restricted property (typically restricted stock or LLC interests subject to vesting) to recognize income at the time of grant rather than at vesting.
Why It Matters
By paying tax on the lower grant-date value, the recipient converts future appreciation from ordinary income to capital gains. This can result in substantial tax savings when the property appreciates significantly between grant and vesting. The election is relevant for fund managers receiving GP interests subject to vesting schedules, as well as for founders and early employees receiving equity in portfolio companies.
Key Details
- The election must be filed with the IRS within 30 days of the grant. This deadline is absolute.
- If the property is forfeited after making the election, the tax paid is not recoverable.
- Common for founders and early employees receiving restricted equity.
- Relevant for fund managers receiving GP interests subject to vesting.
- The election is made by mailing or faxing a signed statement to the IRS; there is no specific IRS form.
Capital Company can assist with tracking vesting schedules for GP interests and coordinating with tax advisors on Section 83(b) election timing.
This content is for informational purposes only and does not constitute legal, tax, or compliance advice. Consult qualified counsel for guidance specific to your situation.